Blocked Credit Under Section 17(5) GST

Last updated: 3 June 2026

Section 17(5) of the CGST Act 2017 lists specific goods and services on which Input Tax Credit (ITC) is completely blocked — even if they are used for business purposes and the supplier has charged GST on them. Knowing this list prevents wrongful ITC claims and the resulting penalties.

17(5)

ITC blocked = GST paid is a dead cost. You cannot set it off against your GST liability. It must be expensed or capitalised in your books.

What Is Blocked Credit?

Under the GST framework, a registered taxpayer can generally claim ITC on goods and services used in the course or furtherance of business. However, Section 17(5) of the CGST Act 2017 carves out specific exceptions — these are called blocked credits. Even if a valid tax invoice exists and GST has been properly paid to the supplier, ITC on these items cannot be availed.

The tax amount becomes an additional cost — it either increases the purchase cost of the asset or is charged to the profit and loss account. Wrongfully claiming blocked credit can attract reversal with interest (18% p.a.) and penalties under Section 74 or 122 of the CGST Act.

Complete List of Blocked Credits Under Section 17(5)

Blocked Item	When ITC Is Allowed (Exception)	Clause
Motor vehicles & other conveyances (≤13 seats)	Used for further supply (dealers), transportation of passengers (taxi/bus), driving training, or transportation of goods	17(5)(a)
Vessels and aircraft	Used for further supply, transportation of goods/passengers, imparting training on navigation/flying	17(5)(a)
Services of general insurance, servicing, repair & maintenance of motor vehicles (where ITC on vehicle itself is blocked)	Same exceptions as motor vehicles above	17(5)(ab)
Food & beverages, outdoor catering, beauty treatment, health services, cosmetic & plastic surgery, leasing/hiring/maintenance of motor vehicles	Same category is the taxable output (e.g., restaurant buying food, spa buying cosmetics)	17(5)(b)
Membership of clubs, health & fitness centres	Business of providing the same services (e.g., a gym)	17(5)(b)
Travel benefits to employees — Leave Travel Allowance, vacation	Obligatory under any law currently in force; or for business travel that is part of taxable service	17(5)(b)
Rent-a-cab, life insurance, health insurance	Statutory obligation under any law; or the supplier is in the same business	17(5)(b)
Works contract services for construction of immovable property (except plant & machinery)	Used for further supply of works contract services (sub-contractor scenario)	17(5)(c)
Goods or services received for construction of immovable property on own account	Plant and machinery is explicitly excluded — ITC allowed on P&M	17(5)(d)
Goods or services used for personal consumption	No exception — personal use is outside the scope of GST ITC entirely	17(5)(g)
Goods lost, stolen, destroyed, written off, gifted or free samples	No exception	17(5)(h)
CSR expenditure (goods/services used for CSR under Companies Act 2013)	No exception — blocked from Budget 2023 amendment	17(5)(fa)

Budget 2023 Amendment — CSR Expenses Now Blocked

Prior to the Finance Act 2023, there was ambiguity on whether ITC could be claimed on goods and services procured for CSR activities. Several companies were claiming ITC on event management, construction of facilities under CSR, procurement of goods distributed to beneficiaries, etc.

The Finance Act 2023 inserted Clause (fa) in Section 17(5) of the CGST Act, explicitly blocking ITC on goods or services used for activities relating to Corporate Social Responsibility under Section 135 of the Companies Act 2013. This applies to all CSR spending — including donations of goods, sponsorships, construction of schools or hospitals under CSR, etc.

Key Exception: Same Business Rule

The most practically important exception to Section 17(5) is the "same business" rule. If the very service or goods that would otherwise be blocked are themselves the taxable output of the supplier's business, ITC is allowed. Examples:

A hotel buying food ingredients for its restaurant → ITC allowed (food is the business)
A transport company buying motor vehicles for passenger service → ITC allowed
A gym providing health & fitness → ITC allowed on fitness equipment classified under health services
An insurance company → ITC on life/health insurance premium (its own services) allowed

Impact on Books of Accounts

When ITC is blocked, the GST paid on the purchase must be added to the cost of the goods or services. If it is a capital asset, the blocked ITC is capitalised and depreciated. If it is a revenue expense, the GST becomes part of the deductible expenditure under the Income Tax Act 2025 (erstwhile Income Tax Act 1961). This increases the cost base and the allowable income tax deduction, partially offsetting the loss.

Frequently Asked Questions

Why is ITC on food and beverages blocked under GST?

Section 17(5)(b) of the CGST Act 2017 blocks ITC on food and beverages, outdoor catering, and similar services because these are considered personal consumption items. The legislature treats them as benefits provided to employees or for personal use rather than direct business inputs. The exception applies only when the supplier is in the same line of business — for instance, a restaurant or catering company can claim ITC on food purchases because food is directly used to provide taxable output services.

Can I claim ITC on purchase of a car for my business?

It depends on the use. ITC on motor vehicles is blocked under Section 17(5)(a) of CGST Act 2017 for most businesses. However, ITC is allowed if the vehicle is used for: (1) further supply of vehicles — i.e., car dealers; (2) transportation of passengers as a taxable service — e.g., taxi operators, bus fleet owners; (3) imparting driving training; or (4) transportation of goods. A company buying a car for employee commute or executive use cannot claim ITC.

Is ITC on health insurance premium blocked for a company?

Yes, ITC on health insurance (including group health insurance) is blocked under Section 17(5)(b)(iii) of CGST Act 2017, unless it is a statutory obligation. If a company is required by law (e.g., under the Employees' State Insurance Act or under a contractual obligation mandated by a government order) to provide health insurance, ITC can be claimed on that portion. Companies providing health insurance purely as a voluntary employee benefit cannot claim ITC.

Why is ITC blocked on construction of immovable property?

ITC on works contract services and goods/services used in construction of immovable property (other than plant and machinery) is blocked under Section 17(5)(c) and 17(5)(d) of CGST Act 2017. The rationale is that immovable property is not consumed in the course of taxable supply — it is a capital asset used by the business. Plant and machinery is an explicit exception because it is directly used in production of taxable goods or services.

Are CSR expenses eligible for ITC under GST?

No. From Budget 2023, ITC on goods or services used for Corporate Social Responsibility (CSR) activities under Section 135 of the Companies Act 2013 is explicitly blocked. This was added via an amendment inserting Clause (fa) in Section 17(5) of the CGST Act 2017. The rationale is that CSR spending is not for furtherance of business in a commercially oriented sense — it is a mandated social obligation. This amendment applies prospectively.

Can a company claim ITC on rent-a-cab services for employees?

Generally no. ITC on rent-a-cab services is blocked under Section 17(5)(b)(i) of CGST Act 2017. Exceptions: (1) if the company itself is in the business of providing rent-a-cab services (same line of business); (2) if providing cab services is a statutory obligation under any law. For most IT companies or manufacturers providing employee transportation, ITC on rent-a-cab invoices cannot be claimed even if it is a legitimate business expenditure.

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