This article delves into whether a proprietor firm can claim ITC on mobile phones and cars purchased for personal use, supported by the provisions of the GST Act, relevant rules, and illustrative examples.
Understanding ITC under GST
According to Section 16 of the Central Goods and Services Tax (CGST) Act, 2017, a registered person can claim ITC if the following conditions are met:
The taxpayer must be registered under GST. The goods or services must be used for business purposes. The supplier must have deposited the GST collected. The taxpayer must have a valid tax invoice. The goods or services must not fall under the blocked credit category as specified in Section 17(5) of the CGST Act.
ITC on Mobile Phones: Business vs. Personal Use
1. Mobile Phone Used Exclusively for Business Purposes:
If a mobile phone is purchased exclusively for business use, ITC can be claimed under Section 16 of the CGST Act.
Example: A proprietor purchases a mobile phone for managing client calls and business communications. Since the phone is used entirely for business purposes, ITC can be availed.
2. Mobile Phone Used for Personal Purposes:
If the mobile phone is used solely for personal purposes, ITC cannot be claimed as per Section 17(1) of the CGST Act, which restricts ITC for non-business use.
Example: A proprietor purchases a mobile phone for personal use without any business-related activity. ITC is not available in this case.
3. Mobile Phone Used for Both Business and Personal Purposes:
If the mobile phone is used for both business and personal purposes, ITC can be claimed proportionately under Section 17(2) of the CGST Act.
Example: A mobile phone used 70% for business and 30% for personal purposes allows the taxpayer to claim ITC on the business-use portion.
ITC on Cars: Business vs. Personal Use
1. Car Purchased Exclusively for Business Purposes:
Section 17(5)(a) of the CGST Act blocks ITC on motor vehicles used for transportation of persons unless used for specified purposes such as:
- Transportation of passengers.
- Training for driving.
- Further supply of such vehicles.
Example: If a proprietor buys a car for business-related passenger transportation services, ITC can be claimed.
2. Car Purchased for Personal Use:
ITC cannot be claimed if the car is used for personal purposes, as per Section 17(5)(a).
Example: A car purchased for personal commuting by the proprietor is not eligible for ITC.
3. Car Used for Both Business and Personal Purposes:
ITC is not allowed, even if the car is partially used for business purposes, due to the specific restriction under Section 17(5).
Example: A proprietor using the car 60% for business and 40% for personal purposes still cannot claim ITC.
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