Ineligible GST Input Tax Credit (ITC) in Tally

Ineligible GST Input Tax Credit

Normally GST paid for taxable expenses for business purposes are eligible for Input Credit. However, in some case, even business related expenses are not eligible for Input Credit

Some examples of currently ineligble Input Tax credit are, Leave Travel / Home Travel benefits / concession to Employee, Club / Heath/ Fitness centre membership / Rent a cab, life/ Health Insurance to employees, Goods lost / damaged/ stolen / written off / given free as gift or samples / food, beverages, outdoor catering etc. These are notified by government from time to time.

Business enterprise may avail ITC paid on purchase of Car for Trade (Dealer of Motor Vehicle – as Goods), purchase of Car for Transportation of Passengers / own goods (Transporter – as Fixed asset), training in own driving school (Motor Training school – as Fixed asset). However,  ITC will not be available for personal use of Car or for nonbusiness purpose.

We explain below the GST set up and accounting entry of Ineligible ITC through illustration of Car for Personal use. Similar treatment would be made for all types of Ineligible ITC expenses / payments

GST set up in Ledger Account for ineligible ITC in Tally

Select GoT>Accounts Info>Ledger>Create) to get Ledger creation screen to create Ledger Account for Ledger Account subject to ineligible ITC.

GST set up for Ineligible ITC Ledger Account in Tally

Enter Account Name, Parent Group (at Under). At Is GST Applicable, select Applicable. At Set / Alter GST details, set Yes to get GST Detail screen to set the GST details

GST Details set up in Ledger Account for ineligible ITC: At GST Details screen, set as follows:

GST details for Item of ineligible Input Credit in Tally

• At Is Non GST Goods, set No.
• At Nature of Transaction, select Not Applicable (Nature of Transaction would be specified in Voucher)
• At Taxability, select Taxable
• At Is ineligible for Input Credit, set Yes. If you do not see the option in the GST details screen,

Click F12:Cofigure to get Configuration screen and set Yes at Set Ineligible Input Credit.

• At Tax Type, enter the Tax Rate.

GST details option configuration

Ineligible GST ITC Purchase entry in Tally

Select GoT>Accounting Voucher>F9:Purchase  to get Purchase Voucher entry screen. Click V:As Voucher & I:Accounting Invoice to get Accounting Invoice format.

Ineligible GST ITC Purchase entry in Tally

Tax Classification entry in Purchase Voucher in Tally

At Tax Analysis pop up screen, select Tax Classification from the list. Click F12:Configure to get Configuration screen and then again click F12:Configure to get Purchase Advanced Configuration screen . Set Yes at Allow expenses / Fixed Asset in Purchase Voucher, to enable entry of Fixed Asset Ledger Account in Purchase Voucher.

Fixed Asset  option set up in Voucher Configuration in Tally

Ledger Accounts entry in Purchase Voucher : At Purchase Voucher entry screen , select Customer Account and enter the amount of Bill (including Tax) at credit column. Select Fixed Asset Ledger account (specified for Ineligible ITC) and enter the value in Debit column. Select GST Accounts an enter the amount of GST in Debit Column. Save the voucher.

Tax Analysis : When you click A:Tax Analysis to view the Tax details, a message “This voucher has no Tax Implications / Tax Analysis is not supported’’ is displayed in the voucher screen

You may even record the Purchase Transaction in Journal Voucher, instead of Purchase Voucher. The effect would be same.

Effect of Ineligible ITC Purchase in GSTR Reports in Tally

In GSTR-2, Ineligible ITC Purchase are reflected in B2B Invoices .

Effect of Ineligible ITC Purchase reflevted in GSTR-2

In GSTR-3B, it is reported as Ineligible supplies.

Ineligible ITC Purchase reflected in GSTR-3B

Accounting of Ineligible GST ITC by Registered Dealer in Tally

We now explain entry of Ineligible ITC expenses incurred by Registered Dealer.

GST set up in Ineligible Expenses Ledger  Account Master in Tally

Create Ledger Account Master for Ineligible ITC Expenses, and make necessary set up for GST implication, in the Ledger Account Master.

Select GoT>Accounts Info>Ledger>Create to get Ledger creation screen . Create Ledger Account as usual. Set as follows:

• GST Applicability : At GST Applicable, set Yes
• GST Details activation : At Set Alter GST details, set Yes to get the GST details set up screen
• Nature of Supply : At Type of Supply, select Services

GST Ineligible ITC Expenses Ledger Account set up in Tally

At GST Details screen , set as follows:

GST set up for Ineligible ITC Expenses Ledger Account in Tally

• Nature of Transaction : At nature of Transaction, set Not Applicable. The nature of Transaction would be set at Voucher entry
• Taxability : At Taxability, select Taxable. The expense is Taxable and the registered supplier would charge GST in their Invoice (the GST has to be paid but ITC would not be available).
• ITC Applicability : At Is ineligible for Input Credit, set Yes (if this option does not appear in the GST details screen , click F12:Configure to get Configuration screen and set Yes at Set Ineligible Input Credit.
• Tax rate : Enter the Tax Rate applicable for such expenses.

At GST Details screen , click F12:Configure and set Yes at  Set Ineligible Input Credit

Ineligible GST ITC Expenses Voucher Entry in Tally

To enter ineligible GST ITC  expenses, create a Purchase Voucher (GoT>Accounting Voucher>F9:Purchase), as usual. Click I:Accounting Invoice (or press Alt+I) to get Accounting invoice mode (to enter expenses ledger account).

At Purchase Voucher entry screen, at Party Name, select the Party (supplier of service).

Ineligible GST ITC Expenses Voucher entry in Tally

At Tax Classification Details pop up screen, select Classification from the list

GST Tax Classification entry in Voucher in Tally

Click A:Tax Analysis button to view the Tax details.

Tax Analysis display for Ineligible ITC Expenses Voucher entry

Effect of Ineligible ITC in GSTR in Tally

Select Display>Statutory Reports>GST Reports.

• Select GSTR-2 to view the GSTR2 Report. The purchase is reflected in B2B Invoice .
• Select GSTR3B to view GSTR-3B (Click F1:Details to get details and scroll down), where it will be reflected as Ineligible ITC

Effect of Ineligible ITC in GSTR-2 in Tally

Effect of Ineligible ITC in GSTR-2 in Tally

Effect of Ineligible ITC in GSTR-3B in Tally

Effect of Ineligible ITC in GSTR-2 in Tally

Effect of Ineligible ITC in Balance Sheet in Tally

However, in Balance Sheet, the Tax paid for Ineligible ITC would be reflected under Duties &Taxes, apparently implying that this would available as Input Credit. However, this need to be adjusted through Journal Voucher (both for Ineligible ITC for Motor car Purchase as Fixed Assets as well as for Ineligible Expenses (like Club Expenses), explained next.

Adjustment for Reversal of ineligible ITC in Tally

Since input credit is not available for such expenses, create Journal Voucher (GoT>Accounting Voucher> F7:Journal) to reverse the Input Credit entry from accounts .

Reversal Adjustment of ineligible GST ITC in Tally

At Journal Voucher entry screen , select Ineligible Expenses ledger Account and enter the Tax Amount. The Tax amount gets charged to expense account. Select Tax Account.

At Tax Amount pop up screen, enter the Tax rate and taxable Amount. Enter the Tax Amount in Credit Column. This way the Tax Account gets adjusted and the ITC amount is charged to expenses Account.

GST Ineligible  ITC Adjustment entry in Voucher in Tally

Stat Adjustment : At Journal Voucher screen, click J:Stat Adjustment to get Stat Adjustment screen . Set as follows:

• Tax Type : At Type of Tax, select GST
• Nature of Adjustment : At Nature of Adjustment, select Reversal of Input Credit, from the List of Nature of Adjustment.

GST ITC Reversal Stat Adjustment set up in Voucher entry

• Additional Details : AtAdditional Details, selectIneligible Credit,from the List of Nature of Adjustment.

Now in Balance Sheet, under Duties & Taxes, the amount would be adjusted (shown NIL).

With this entry, the expenses account in P L Statement would include total cost including the GST.

Eligible ITC subsequently becomes Ineligible : Sometimes, even eligible ITC purchase may subsequently  become ineligible in certain circumstances. In such case, ITC reversal entry would be created.

Let us assume Purchase is made for  10 Boxes of Goods valued Rs 10000 (tax @12%). For this create a regular Purchase Voucher as explained. ITC of Rs 1200 would be available on the Purchase.  Assume that later One Box is lost. Now ITC would not be available on the value of 1 Box and ITC (Rs120) is to be reversed as Ineligible ITC, through Journal Voucher, as explained above

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