Last Updated on February 7, 2026

“Blocked credits” as a term applies to specific goods and services for which a taxpayer cannot claim Input Tax Credit (ITC), despite these being utilized for and in the course of business. This is stipulated under Section 17(5) of the CGST Act of 2017 and distinctly outlines such categories of goods for which ITC does not apply. While the very essence of the GST regime is ITC and the free flow of such credits throughout the entire supply chain without any issues of cascading duty liability, “blocked credits” present a picture of an exception to this very guideline and fundamental principle of the GST structure. This can include a whole array of goods such as specific vehicles, food and beverage items, club fee recovery, works contract for the construction of an immovable asset, and even the supply of products as a gift or on the basis of “free samples.” It is important to understand the concept of “blocked credits” to ensure compliance with GST requirements and avoid exemptions and penalties.

Section 17(5) of the CGST Act 2017

Section 17 under the Act discusses allocation and liabilities pertaining to Input Tax Credit and Blocked Credits. Specifically, Section 17(5) identifies and enumerates types of commodities and services for which Input Tax Credit is denied, provided that they are utilised furtherance of business; these are called Blocked Credits.

Though the concept of GST encourages minimal cascading, this section has clearly stated the goods where Input Tax Credit is barred, leading to a loss. Entrepreneurs and organisations must understand these blocked Input Tax Credit regulations before availing of Input Tax Credit to avoid penalties and legal issues.

1. Motor Vehicles and Conveyances

ITC is not applicable to motor vehicles for the transportation of individuals having a maximum approved seating capacity of not more than 13 persons, including the driver.
Exception: ITC is allowed in the following circumstances:
The further supply of such motor vehicles, for example, car dealerships
The transportation of passengers (e.g., taxi service)
Providing training on driving these vehicles
ITC is also restricted to vessels and aircraft, unless they are employed for specific taxable supplies such as the transport of goods or passengers or for training purposes.

2. Motor Vehicle-related Services

No ITC is available for:

General insurance
Servicing
Repair and maintenance of motor vehicles
Exemption: ITC is allowed when:
The motor vehicle itself would be eligible for ITC
It is the activity to which the recipient devotes himself.

3. Food, Beverages and Personal Consumption

ITC is restricted to:

Food and beverages
Outdoor catering
Beauty treatment
Health services
Cosmetic and plastic surgery
Leasing, renting or hiring of motor vehicles
Life insurance and health insurance
Membership of a club, health, or fitness centre
Travel benefits provided to employees during vacation, such as Leave Travel Concession.

Exceptions – ITC is available in case:

The inward supply is used to make an outward taxable supply of identical character or
It shall be obliged for the employer according to any legislation, for example, statutory health insurance

4. Work Contract Services

The restriction of ITC on works contract services applies if it is done for the construction of immovable properties, excluding plant and machinery.
Exception: ITC is allowed if the works contract service is used for the future provision of works contract services, e.g., subcontractor to contractor.

5. Construction of Immovable Property

ITC is not available for goods or services consumed for the construction of an immovable property (other than plant and machinery) for one’s own account.
“Construction” includes reconstruction, renovation, additions, or alterations to the extent of capitalisation in financial records.
Plant and machinery are not covered under this restriction, and ITC is admissible.

6. Goods/Services Used for Personal Consumption

ITC is not allowed on goods or services used for personal consumption.
Although ITC is obtained in the name of the business, if used for personal gain, it is restricted.

7. Goods Lost, Stolen, Destroyed, or Given as Gifts

ITC is not available on:

Goods that are lost
Goods that are stolen
Goods that are destroyed
Goods that are written off
Goods disposed of as gifts or free samples

This guarantees that ITC is exclusively related to business usage that is taxable.

8. Tax Paid Under Composition Scheme

ITC cannot be claimed if tax is paid under the Composition Scheme (Section 10).
Additionally, composition dealers themselves are not allowed to claim ITC.

9. Non-Resident Tax

ITC facility is not available to a non-resident taxable person, except for the imports made by him.

10. Tax Paid Due to Fraud or Penalty

ITC is not permitted concerning tax paid due to:

Fraud
Willful Misrepresentation
Suppression of Facts
Seizure and Confiscation actions under Sections 74, 129, and 130.

11. Explanation of “Plant and Machinery”

For Section 17(5), “plant and machinery” includes:

Apparatus, equipment, and machinery fixed fast to the ground by foundation, support, etc.
Utilised for making outward supply of goods or services

Excludes:

Land
Building
Civil structures
Telecommunication towers
Pipelines situated outside the factory premises

Purpose of Section 17(5)

Prevents the misuse of ITC on personal or capital assets.
Guarantees that credit is given based on actual business contributions.
Maintains revenue protection measures.
Prevents duplicate benefits in capital-intensive assets such as buildings.

Consequences of Non Compliance of Section 17(5) of CGST Act, 2017

Failure to comply with the provisions of Section 17(5) of the CGST Act, 2017, which pertains to Blocked Credits, can have serious financial consequences on the taxpayer:

Reversal of improperly claimed ITC: The input tax credit, if wrongly availed on restricted goods, should be reversed.
Interest liability: According to Section 50, interest has to be paid from the time unauthorised use of ITC began.
Penalties can be enforced through either Section 73 or 74 based upon the fact that the mistake was genuine or due to fraud/suppression.
Demand notice and litigation: The department may serve a show cause notice, which leads to assessment or litigation.
Reversing interest impacts cash flow.
Audit Scrutiny: If the ITC claim is incorrect, then it may attract the scrutiny of GST Audit/Investigation.

How Can Kanakkupillai Help You?

Are you encountering issues with the blocking of credits in accordance with Section 17(5) of the GST Act? Well, KANAKKUPILLAI is here to assist you in managing this with confidence and precision!

Our GST specialists conduct a detailed assessment of your transactions, identify the ineligible ITC claims, and provide guidance on the reversal requirements to avoid penalties and notices. Besides, we will help you respond to queries from departments and organize your transactions for optimal legal credits.

With the right usage of our expertise, timely support, and extensive compliance service offerings, one can minimize the risk and safeguard working capital. Rely on KANAKKUPILLAI for a seamless, accurate, and complication-free GST Compliance process.

Frequently Asked Questions (FAQ)

1. What are blocked credits under GST?

Blocked credits are specific goods and services for which the input tax credit is not allowed under Section 17(5) of the CGST Act, 2017.

2. Is ITC accessible for motor vehicles?

No, ITC would not be allowed on motor vehicles used for the transport of passengers up to 13 seats, except for resale or passenger transportation business purposes.

3. Can ITC be claimed for foods and beverages?

In general, no. The granting of ITC is not allowed unless utilized for the production of outward taxable supplies of the same category or is mandated by law.

4. Is it possible to apply ITC to office blocks?

No, ITC is not admissible on the construction of immovable property, excluding equipment and machinery.

5. Do gifts and free samples qualify for ITC?

However, ITC on goods given as a gift or free sample is not allowed.

6. Is ITC available for personal expenses?

No, ITC is completely prohibited for personal use.

7. Can composition dealers claim ITC?

No, taxpayers who opt for the composition scheme are not eligible to claim ITC.

8. What services are restricted under section 17(5) of the GST Act, 2017?

The services provided include food and beverage services, outdoor catering services, beauty treatments, offering health services, cosmetic surgery services, club memberships, life and health insurance services, offering employee travel benefits, works contract services for the construction of immovable properties, and services related to ineligible motor vehicles, etc., are blocked under section 17(5).

9. How can blocked credits be identified in a GST?

Blocked credits may be recognised by a review of the text in Section 17(5) of the CGST Act and a determination of the nature and intent of the inward supplies in relation to the purchase documents.

Blocked Credit Under GST