Industry bodies have sought relief from goods and services tax (GST) rules that prevent businesses from claiming input tax credit (ITC) — the credit for GST already paid on goods and services used for business — on certain expenses, according to people familiar with the matter.

Currently, Section 17(5) of the Central GST Act restricts ITC on certain construction-related expenses for immovable property, including works contract services and goods and services used for construction, subject to specified exceptions.

Industry bodies have also sought a review of Section 17(5)(b), which blocks ITC on several expenses that are part of regular business operations. These include food and beverages, outdoor catering, health services, leasing, renting or hiring of motor vehicles, and life and health insurance, subject to specified exceptions.

These expenses can account for a significant share of spending in employee-heavy sectors such as global capability centres (GCCs), industry representatives said. Allowing ITC on such expenses would reduce tax costs, improve the competitiveness of Indian operations, and support the government’s ease-of-doing-business objective, they said.

Industry has proposed amending Section 17(5)(b) to allow ITC on these expenses. It has also cited practices in countries such as the UK, Canada, Singapore, and Germany, where indirect taxes paid on certain business expenses can, subject to local rules, be offset against tax liabilities.

Source: Business Standard