Blocked Credits Under GST (Section 17(5))

Meeting every eligibility condition still isn’t enough for a specific list of goods and services. Section 17(5) blocks credit on these categories outright, regardless of whether the usual eligibility conditions are otherwise satisfied.

GST Compliance

What Is GST? A Complete Guide

Blocked Credits (17(5))

Input Tax Credit: The Rules

ITC Reversal: Rules 42 and 43

Blocked credit categories and their exceptions have been amended, including retrospectively. This article is for general information and does not constitute tax advice.

Vehicles, Vessels, and Aircraft

Motor vehicles for transporting persons (seating up to 13 including the driver), vessels, and aircraft carry no ITC by default. Exceptions: further supply of such vehicles, use in a passenger transport business, driving training, or (for vessels/aircraft) transporting goods. Insurance, servicing, repair, and maintenance follow the same blocked-unless-excepted logic.

Employee-Facing Benefits

Food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, and life and health insurance are blocked by default. Exceptions: where the same category is used to make an outward taxable supply of that category, part of a composite/mixed supply, or, for insurance, where it’s obligatory under law. Club, health, and fitness centre membership is blocked with no comparable exception.

Construction of Immovable Property

Works contract services and goods/services received for constructing an immovable property on one’s own account are blocked, with a narrow exception for plant and machinery fixed to earth. The wording was changed from “plant or machinery” to “plant and machinery,” applied retrospectively from 1 July 2017, to override a Supreme Court interpretation. “On own account” is key: a developer constructing units to sell before completion, still liable to GST, falls outside the block.

Other Blocks

Tax paid to a composition-scheme supplier carries no ITC. A non-resident taxable person is similarly blocked, except on goods imported themselves. Goods used for personal consumption, lost, stolen, destroyed, written off, or disposed of by gift or free sample, carry no ITC regardless of business intent. ITC is also blocked where tax has been paid pursuant to demand or detention proceedings under Sections 74, 129, or 130.

FAQs: Blocked Credits

Can a real estate developer claim ITC on construction costs for units still being sold?

Generally yes, since the block applies to construction “on own account” and a developer constructing to sell before completion is building for further taxable supply.

Does the plant-and-machinery exception cover the building that houses the machinery?

No, the exception is narrow and covers only the apparatus and machinery itself, not the surrounding structure.

If a company car is used 80% for business and 20% personally, can partial ITC be claimed?

No, this isn’t proportional; the block turns on the vehicle’s category and applicable exceptions, not a business/personal use split.

Is ITC available on employee health insurance mandated by law?

Yes, where providing it is obligatory under a law currently in force, unlike a voluntary insurance benefit.

Does the block on gifts and free samples apply even to genuine promotional items?

Yes, regardless of business or promotional intent, goods disposed of as gifts or free samples fall outside ITC eligibility.

What happens if blocked credit is claimed anyway?

It typically surfaces through a DRC-01A notice requiring voluntary reversal along with interest, at 24% per annum if the credit was actually utilised.

Last updated on 8 August 2026