Income Tax

Input Tax Credit for Masks, PPEs- Putting up a Fight against COVID-19

calendar12 Jun, 2020
timeReading Time: 4 Minutes
Input Tax Credit for Masks, PPEs- Putting up a Fight against COVID-19

The government could allow firms to seek input tax credit for masks, PPEs, sanitizers, and other goods of similar nature that they have donated as well as supplied for free to withstand coronavirus pandemic. One of the officials in CBIC stated that several representations demanding relaxation got received by the government in section 17- subsection 5(h) of the CGST Act, 2017. It doesn’t allow for credit on goods given in the form of a gift or destroyed, lost, or offered for free as well.

According to the sources reports, several firms/companies have made an approach to the government for getting relaxation in CGST norms. CBIC officials clarified that decisions regarding the relaxation with respect to the input tax credit for masks, PPEs, and various goods of the same family would come out very soon.

Observations on Input Tax Credit for Masks, PPEs

  • Industry experts have also put their point on the input tax credit for masks, PPEs Kit, sanitizers, and other items. Rules of corporate social responsibilities are in favor of the companies/ firms to clear up expenses related to corona virus. Furthermore, CBIC officials emphasized on tax benefits on goods donated or distributed could be added to corona virus related expenses.
  • It has observed that amidst of COVID-19 outbreak in India, the purchase of gloves, masks, and sanitizers would fall under the category of essential business expenditure. Therefore, all the companies should get the benefit of input GST. 
  • Moreover, in compliance with a different viewpoint, the debate always been existed whether corporate social responsibilities spend was eligible for ITC or whether it is for the sake of business purpose, if the government makes proper clarification on it. Hereby, it will act as a source of encouragement for businesses and corporate to take more CSR initiatives like this.

What is Input Tax Credit?

Input Tax Credit

Expenses Allowed for Input Tax Credit for Masks, PPEs, Sanitizers and Other Nature of Staff Welfare Expenses

In accordance with the MHA Guidelines, the following staff welfare expenses would get allowed for input tax credit during the pandemic-

  • Before corona virus pandemic, expenses related to masks, sanitizers, and similar equipment were not eligible for the input tax credit. However, at the time of the epidemic, they have become eligible for availing ITC benefits, not in all the cases. According to the CGST Act, 2017 input tax credit for masks, PPEs, sanitizers, and other staff welfare expenses is unavailable except in the case where it becomes mandatory for an employer to provide the same to staff working under them within legal guidelines for the time being in force.
  • Before pandemic, No ITC was applicable for expenses on health insurance of workers, but during the pandemic, these expenses on medical insurance will be allowed for the input tax credit. A letter should get obtained from the insurance company to make sure that the insurance policy received by the assessee comes under the purview of the Ministry of Corporate Affairs guidelines.
  • Prior to the COVID-19 outbreak, expenses related to transport services for employees where the public, as well as private transport, is not easily available, were not eligible for ITC but amid pandemic, will be eligible for availing the benefits of ITC.
  • No ITC was available for expenses concerning food and beverages, and even during the pandemic, there is no eligibility since not decreed by law.

Read our article:Applicability of ITC on Capital Goods under GST

Clarification from the Ministry of Corporate Affairs Concerning Expenses that would qualify as CSR Expense

  • The Ministry of Corporate Affairs has defined spending of CSR funds during COVID-19 pandemic shall qualify as CSR expense conforming to vide No. 10/2020 – dated March 23, 2020.
  • All the contributions made to the ‘PM CARES Fund’ must qualify as CSR expenses.
  • The contribution made in favor of SDMA, i.e., State Disaster Management Authority to wage war against COVID-19 Management Authority must get qualified as CSR expenditure.

Directives for Workplaces by Ministry of Home Affairs

The Ministry of Home Affairs had issued a directive for the workplace that would appear as a basis for the input tax credit for masks, PPEs, sanitizers, and different types of staff welfare expenses. Some of the directives are given below-

  • Regular sanitization of the whole office and those points which can probably come into human contact
  • Special provision for thermal screening, sanitizer along with hand wash would get served at the entry and exit point
  • All areas on the premises must get disinfected
  • Covering face with the mask is compulsory at workplaces
  • Employees showing any COVID-19 symptoms must be sent in no time for a checkup in the nearest clinics or hospitals
  • Health insurance must be a mandatory thing for workers
  • Special transportation facility for workers coming from faraway places

Expenses Not Treated as CSR Expense and Thus, No Admissibility for ITC

  • Payment of wages to daily wage workers or temporary workers throughout the period of lock down completely comes under contractual obligations. Hence, it shall not qualify as CSR expenditure under section 135 of Companies Act, 2013[1], and no applicability of ITC on them.
  • During the lock down phase, payment of salary/wages to employees, as well as workers fulfilling their job and responsibilities, shall not get counted under CSR expenditure, and thus, no ITC will be admissible.
  • CM Relief Fund or State Relief Fund for Corona virus pandemic does not come under the purview of Schedule 7 of Companies Act, 2013. Hence, it will not qualify as CSR expenditure and thereby, no admissibility of ITC on these funds.

Take Away

As the tax experts are saying, the Indian government must permit input tax credit for mask, PPEs Kit, sanitizers, and other similar items. Apart from this, the employer can avail input tax credit benefit for the staff welfare expenses amid COVID-19. Let’s see what action the government is going to take for the economic revival amid the corona virus pandemic.

Read our article:Approvals Required to Meet the Requirement of Face Mask and PPE Kit License

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