Blocked Credit in Real explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
A hotel project touches more of s.17(5) than almost any other business. Construction, works contracts, vehicles, food, insurance, gifts and write-offs all arise on one site, and the clauses interact.
This is a mapping exercise, and it is cheapest done at design stage.
Six clauses converge: (c) works contract services, (d) own-account construction, (a)/(ab) vehicles and their running costs, (b)(i) food and beverages, and (h) free supplies and write-offs. The single most valuable exercise is the plant and machinery split — separating apparatus, its foundations and structural supports from the civil works, at contract award rather than at capitalisation.
The construction phase
Blocked under clause (d): cement, steel, blocks, tiles, sanitaryware, false ceilings, glazing, architectural and structural design, project management consultancy, site supervision — everything used to build the immovable property. Section 17(5)(d) →
Blocked under clause (c): works contract services for that construction, unless the recipient is itself supplying works contract service onward. Section 17(5)(c) →
Creditable — plant and machinery: chillers and HVAC plant, kitchen equipment, lifts and escalators where they qualify as apparatus, generators, sewage and water treatment plants, laundry equipment, fire-fighting pumps and systems — together with their foundations and structural supports. The plant and machinery definition →
Creditable — movable: furniture, loose fittings, linen, crockery, IT hardware, kitchen smallwares.
The contested middle: lift shafts, plant rooms, kitchen exhaust ducting, insulated cold rooms, swimming pool plant. Each has an apparatus component and a civil component, and the answer depends on how the contract and the asset register split them.
The plant and machinery split, done properly
This is where the money is, and it has to be done at award, not at completion.
- Ask the contractor for a separate bill of quantities for plant and machinery, including foundations and structural supports, distinct from civil works.
- Price them separately in the contract, with separate milestones and separate invoicing.
- Keep the engineering drawings, which establish what is apparatus and what is structure.
- Mirror the split in the fixed asset register, so the accounting supports the credit position.
- Do not accept a single lump-sum EPC price and attempt a split later. A retrospective apportionment with no contractual basis will not survive.
The same discipline applies to a manufacturing plant, a warehouse with automated systems, a data centre, and a cold chain facility.
The operating phase
Food and beverages — clause (b)(i). A hotel or restaurant buying food to serve food is within the same-category proviso, so credit is available on that basis. But restaurant service outside specified premises is taxed at 5% without input tax credit as a condition of the rate — so the proviso does not help where that rate is used. Where the hotel's restaurant is within specified premises and taxed at a rate that permits credit, the proviso operates. Restaurant supply under Schedule II 6(b) →
Guest transport — clauses (a) and (b)(i). Vehicles with 13 or fewer approved seats used to ferry guests are blocked unless the hotel is supplying transportation of passengers as a taxable service. Hired vehicles are blocked under the leasing limb on the same test. A coach with 14 or more seats is outside the block entirely. Leasing, renting and hiring →
Complimentary items — clause (h). Welcome drinks, fruit baskets, amenities given free are goods disposed of by way of gift or free samples, and the credit is blocked — unless they are an element of a taxable composite supply of accommodation, in which case the same-category proviso to clause (b)(i) and the composite supply analysis support the credit. Where the room tariff is taxable and the amenity is bundled into it, the better view is that nothing was given away. Section 17(5)(h) →
Renovation — Explanation 1. A refurbishment cycle is "construction" to the extent of capitalisation. Routine repainting and repairs charged to revenue remain creditable. To the extent of capitalisation →
Exempt output. A residential development, or a completed unit sold after the completion certificate, produces exempt turnover feeding the Rule 42 and Rule 43 apportionment on top of the blocks. Section 17(3): what counts as exempt supply →
The sequence for a mixed project
- Identify blocked credit — clauses (a) to (i) — and remove it as T3.
- Identify credit exclusively for exempt output — T2.
- Identify credit exclusively for taxable output — T4.
- Apportion the remainder through Rule 42 and Rule 43.
Blocked first, apportion second. Order of operations →
Key takeaways
- Six clauses converge on a construction or hospitality project — (a), (ab), (b)(i), (c), (d) and (h).
- The plant and machinery split is the main value driver, and must be done at contract award.
- Movable fit-out is outside the construction block entirely.
- Restaurant service at 5% carries no credit as a condition of the rate, whatever clause (b)(i)'s proviso says.
- Coaches with 14 or more seats escape the vehicle blocks.
- Renovation is blocked only to the extent capitalised.
Read next
- Section 17(5)(d): Construction on Own Account
- The Plant and Machinery Definition
- ITC on Construction and Real Estate: Restricted Credit
- Order of Operations: Block First, Then Apportion
Disclaimer: Positions stated as on 5 September 2026, based on the CGST Act as amended to 31 March 2026 (ICAI Bare Law, 12th edition) and the ICAI Handbook on Blocked Credit under GST (November 2025). Verify the current rate entry and credit conditions for restaurant and accommodation services before applying them.