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Input Tax Credit (ITC) allows businesses to claim a credit for the GST paid on goods or services purchased for business purposes.
What are the main modes of transportation in India?
In India, there are four main modes of transportation: air, rail, road, and sea.
Air: Air travel is the fastest but comes with additional costs like security fees, handling charges, duty costs, and higher GST rates, making it an expensive option.
Rail: Train travel is known for its convenience and affordability, with lower or no GST charges.
Road: Road travel is the most common mode of transportation in India, especially for shorter distances, where public transport like buses, taxis, and cabs offer cost-effective options.
Sea: Travelling by sea is the least common mode of transportation. However, it is still possible to travel between nations by sea.
Can you claim Input Tax Credit on Travel Expenses?
Input Tax Credit can only be claimed if the travel expenses are used for business purposes. In simple terms, ITC on travel can be claimed only if it is related to business activities. Personal travel expenses are not eligible for ITC.
Additionally, ITC cannot be claimed for travel expenses related to employee benefits like vacation leaves or home travel concessions.
For example, if a company like Cleartax provides a travel package to its employees for personal holidays in Goa, they cannot claim ITC on the GST paid for the holiday package. This is because ITC on travel expenses is permitted only for business purposes.
ITC Ltd has offered a 2-day travel package to its employees to attend the company's seminar in Udaipur. In this scenario, ITC Ltd can claim Input Tax Credit (ITC) on the GST paid for the travel package. This is possible because the GST on the package is incurred for business purposes, specifically for the company's seminar.
Flow of Input Tax Credit in different scenarios.
Air:
| Category | GST Rate |
|---|---|
| Economy Class air tickets | 5% |
| Business Class air tickets | 12% |
| Chartered flights tickets for pilgrimage | 5% |
| Rental services of aircraft/chartered flights | 18% |
Rail:
| Category | GST Rate |
|---|---|
| AC and First Class train tickets | 18% |
| Sleeper and General Class train tickets | 0% |
| Metro train token/card | 0% |
Road:
| Category | GST Rate |
|---|---|
| Public transport | 0% |
| Metered taxi/auto rickshaw/e-rickshaw | 0% |
| Non AC/contract carriage/stagecoach | 0% |
| Radio taxi and similar services | 5% |
| Rented road vehicles – cars, buses, coaches (with or without operator) | 18% |
Sea:
| Category | GST Rate |
|---|---|
| Travel via inland waterways | Exempt |
| Travel by vessel for public transport | Exempt |
| Travel by vessel for tourism | 5% |
In which situations is Input Tax Credit (ITC) applicable for travel expenses?
The following cases demonstrate the flow of ITC in different scenarios:
1. When booking travel tickets through an online travel agent:
When booking travel tickets through an online travel agent, the business entity will need to process two separate invoices.
Firstly, an invoice will be issued by the Transport Department providing the travel service, including the applicable GST on the ticket fare in the business entity's name. This invoice allows the business to claim GST credit on the travel tickets.
Secondly, the online travel agent will issue an invoice that includes a "Convenience Fee and other booking charges" along with GST on the ticket cost. The business can claim GST input tax credit from both the Transport Department and the Online Travel Agent/Portal.
2. If the tickets were booked through an offline travel portal:
If the tickets were booked through an offline travel portal, the process is similar to online travel agents mentioned in point 1. The offline travel agent will issue a reimbursement cum tax invoice for the travel ticket amount paid by them, including their booking charges and GST.
In this situation, GST input tax credit will be claimed from both the Transport Department and the Offline Travel Agent.
3. If the tickets were booked directly from the Transport Department's website:
If tickets are booked directly from the Transport Department's website, businesses can claim GST credit for the GST charged by the Department by using the GST invoice or e-ticket issued by the Department.
Key Points:
- When traveling for business with a GST Number, you can claim ITC on GST paid.
- Ensure to provide your GSTIN when purchasing tickets so that the seller can include the invoice in their GSTR-1 with your GSTIN.
- The invoice will appear in the seller's GSTR-2B, allowing you to claim ITC in your GSTR-3B based on the invoice details in their GSTR-2B.
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