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ITC on Personal Effects

A question that often arises in a common buyer’s mind is whether or not they will get ITC on purchases like phones, watches, I-pads, etc. which was purchased for business use. They find it hard to distinguish whether it is used for office purposes or personal consumption, owing to the thin line between the two.  

While it is practically impossible to determine how much of an item is used for business purposes, there are clear guidelines in the law to settle such disputes. According to Section 16 of the CGST Act:

Every registered taxable person shall, subject to such conditions and restrictions as may be prescribed and in the manner specified in section 49 of CGST Act, be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course of furtherance of his business and the said amount shall be credited to the electronic ledger of such person.

Under these prescribed guidelines of the CGST Act, if you can prove that the item or service was intended to be used in business, then the credit can be claimed for it. This applies to all goods and services. Hence, if you can prove that an item is used for business, then the business can claim the ITC on the GST paid for those items.

In such cases of vagueness, the credit can be subject to reversal. There are two ways to counter this. First, you can bifurcate the item’s use into a ratio, i.e., use in business vis a vis personal use, and claim the credit only on the amount pro-rata to the item’s use in business. Second, if that is not possible, then within rule 42, there is a provision for ad-hoc reversal of 5% ITC, which, if reversed every year, clears any possible issues.

Even in a situation where a company or an employer provides an item to their employee, the company/employer can claim complete amount of the purchase as a part of the credit. This applies to anyone, from a simple clerk to the firm’s director or partner, as the courts have established it.

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