Understanding Blocked ITC Under GST

 A Deep Dive into Section 17(5) of CGST Act

Input Tax Credit (ITC) is one of the most significant benefits introduced under the Goods and Services Tax (GST) regime. It allows businesses to claim credit for the GST paid on purchases and use it to offset the GST liability on sales. However, Section 17(5) of the CGST Act introduces certain restrictions on ITC, popularly known as Blocked Credit. In this blog, we’ll explore what blocked ITC means, why it exists, and the key transactions where ITC is not allowed.

What is Blocked ITC?

Blocked ITC refers to specific situations where a taxpayer cannot claim input tax credit, even though GST has been paid on the purchase. These provisions are aimed at preventing misuse of the credit system and ensuring ITC is only claimed on goods and services that are genuinely used for business purposes.

Why Block ITC?

The intention behind Section 17(5) is to:

• Curb fraudulent or excessive credit claims

• Ensure ITC is claimed only on inputs used in taxable outward supplies

• Separate personal or non-business expenses from business expenditures

Section 17(5): List of Blocked Credits

Here are some of the key transactions where ITC is not allowed under Section 17(5) of the CGST Act:

1. Motor Vehicles and Conveyances

ITC is blocked on motor vehicles for transportation of persons with seating capacity ≤ 13 (including driver), unless used for:

• Further supply (e.g., car dealer)

• Transportation of passengers

• Training on driving such vehicles

ITC is also restricted on general conveyances like boats and aircraft with similar exceptions.

2. Food, Beverages, and Outdoor Catering

No ITC is allowed on food, beverages, outdoor catering, and similar services, unless:

• They are used for making an outward taxable supply of the same category (e.g., a catering business)

3. Health and Fitness Services

Expenses like health services, life insurance, health insurance, and membership of clubs, gyms, etc., are not eligible for ITC unless mandated by law.

4. Travel and Accommodation

ITC is blocked for:

• Travel benefits extended to employees on vacation (e.g., leave or home travel concession)

5. Works Contract Services

No ITC is allowed on works contract services for construction of immovable property (except when used for providing further supply of works contract services).

6. Construction of Immovable Property

If goods or services are used for construction of an immovable property (other than plant and machinery) for self-use, ITC is blocked.

7. Composition Scheme and Non-GST Supplies

No ITC is available on:

• Goods/services used for exempt or non-GST supplies

• Tax paid under the composition scheme

8. Personal Consumption

Goods and services used for personal consumption are not eligible for ITC.

9. Goods Lost, Stolen, or Destroyed

ITC is blocked on goods lost, stolen, destroyed, written off, or given as gifts or free samples.

10. Fraudulent Credit

Credit is also restricted if obtained through fraudulent invoices, non-receipt of goods/services, or tax not paid to the government.

Frequently Asked Questions