ITC available on QIP Expenses

This query is : Resolved

Naresh Kumar (Querist)
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09 April 2025 Dear Experts,

We request you to provide the opinion on the eligibility of ITC on QIP (Qualified Institutional Placement) Expenses

Thanks
Naresh

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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11 April 2025 Currently, there is no clear consensus or ruling on the eligibility of ITC on QIP expenses under GST. While arguments exist for considering these expenses as being in the furtherance of business, the classification of the issue of securities as an exempt supply creates a significant challenge for claiming ITC.
ITC on QIP Expenses
The expenses associated with QIP, such as underwriting fees, legal fees, and other professional charges, are subject to GST. The critical question is whether these expenses qualify for ITC.
General Principle: Expenses that are directly related to the business operations and are used for furtherance of business are generally eligible for ITC.
Application to QIP: Since QIP is a method of raising capital for business purposes, the expenses incurred in this process can be considered as being incurred for the furtherance of business.
Potential Considerations
Direct Nexus: There needs to be a direct nexus between the input services (e.g., underwriting, legal services) and the business. Given that QIP expenses are directly related to the business's financial operations, this condition is likely met.
Blocked Credits: Certain expenses are blocked from ITC under GST, but as of the last update, none directly relate to QIP expenses that would categorically deny ITC.

ICAI Clarification: The Institute of Chartered Accountants of India (ICAI) has, in its "Practical FAQs under GST," clarified that ITC is admissible for IPO expenses. While this specifically refers to Initial Public Offerings, the underlying principle of business furtherance could be extended to QIP expenses.

Arguments Against ITC Eligibility:

Transaction in Securities: The tax authorities often argue that the issue of shares or other securities through a QIP is a "transaction in securities," which is specifically excluded from the definition of goods and services under GST. Section 17(2) of the CGST Act stipulates that ITC shall not be available for expenses related to exempt supplies, and Section 17(3) includes "transactions in securities" within the value of exempt supply.
Capital Expenditure: Some argue that expenses incurred for raising capital are capital in nature and should not be eligible for ITC as they are not directly linked to the supply of goods or services.