Namaskar!

How were your Diwali celebrations?

We hope you had an awesome time with your family and friends. Without so much going on in 2020, finally, we reach a point of loads of happiness with the biggest festival of the year.

Diwali is celebrated all over India, and just like you and us, every office has celebrated by giving gifts to their employees and customers.

As we have a habit of tracking the input tax credit on all the purchases made by the company, will we get ITC on Diwali gift purchases is the question of the hour?

To answer all your questions, let's understand the law as stated in the CGST Act, 2017.

Section 17 subsection (5) restricts credit on the following:

(h) goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples

Interpretation and understanding

Section 17(5) of the CGST Act, 2017 restricts the claim of ITC on goods which are given as a gift to anyone.

So, make sure to remember this and calculate your taxes accordingly so that you don't have any problems in reconciliations later on!

Another point to consider

Another critical point to consider is that the Income-Tax Regulatory Framework has the provision for "allowable expenses" which are made to increase the presence of your business and build a brand image.

Even in GST rules, there is a provision for "in the course or furtherance of business" which are the expenses made not directly for profit but enhancing your brand image and getting more business. GST rules state that you can avail input tax credit for such expenses.

This is similar to the case of a pharmaceutical company which gifts doctors and other professionals to increase business profits.

We advise that you should also consider taking input credits but only with the proper procedures in case your expenses and the tax are significant enough. Just Rs. 10,000 in fees and remuneration of a consultant can help you avoid making all such mistakes and save much more in taxes.

With a consultant on your side, you can easily mitigate all such challenges and increase your business operations with peace of mind!

If you are confused about any aspect of your GST, contact us, and we will guide you about each process and help you implement changes that will automate all your taxes related activities while you focus on growing your business to the next level!!!