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GST · Input tax creditBlocked ITC under Section 17(5): practical business examples
Some GST paid on business expenses can never be claimed as credit, even with a valid invoice. Section 17(5) lists these blocked credits – cars, food, construction, gifts and more. Here is the full list with exceptions and examples.
Section 17(5) of the CGST Act blocks input tax credit on certain goods and services, regardless of their business use. Even if the tax appears in GSTR-2B, it must not be claimed.
The blocked list (with key exceptions)
| Clause | Blocked | Exception (ITC allowed) |
|---|---|---|
| (a) | Motor vehicles for transport of persons, seating ≤ 13 | Used for further supply of vehicles, passenger transport, training in driving, or transport of goods |
| (aa) | Vessels and aircraft | Further supply, transport of passengers/goods, training |
| (ab) | Insurance, servicing, repair of (a) and (aa) | Where the vehicle itself qualifies for an exception; or for manufacturers/insurers in specified cases |
| (b)(i) | Food, beverages, outdoor catering, beauty treatment, health services, cosmetic surgery, leasing/renting of vehicles, life and health insurance | Same category outward supply; or obligatory under law for employers |
| (b)(ii) | Membership of club, health and fitness centre | — |
| (b)(iii) | Travel benefits to employees on vacation (LTC/home travel) | Obligatory under law |
| (c) | Works contract services for construction of immovable property (other than plant and machinery) | Where input service for further works contract |
| (d) | Goods or services for construction of immovable property on own account (other than plant and machinery), even if capitalised | — |
| (e) | Tax paid under composition | — |
| (f) | Supplies to non-resident taxable persons (except imports) | — |
| (fa) | Goods/services used for CSR obligations (from 1 October 2023) | — |
| (g) | Goods/services for personal consumption | — |
| (h) | Goods lost, stolen, destroyed, written off, gifted, free samples | — |
| (i) | Tax paid under Section 74 (fraud), 129, 130 (detention/confiscation) | — |
"Plant and machinery" means apparatus, equipment and machinery fixed to earth by foundation or structural support used for outward supplies, including such foundation, but excluding land, buildings and other civil structures, telecom towers and pipelines laid outside factory premises.
The Safari Retreats issue
In October 2024, the Supreme Court (Safari Retreats) held that a building could qualify as "plant or machinery" under a functionality test. The Finance Act, 2025 amended Section 17(5)(d) retrospectively from 1 July 2017, replacing "plant or machinery" with "plant and machinery", effectively blocking ITC for construction of buildings let out commercially. Taxpayers who claimed such credit should review their position.
Worked examples
| Business | Expense | GST | ITC? |
|---|---|---|---|
| Consulting firm | New sedan for partners | ₹2,80,000 | Blocked – 17(5)(a) |
| Car dealer | Cars bought for resale | ₹6,00,000 | Allowed – further supply |
| Travel company | Taxi (5 seats) for passenger transport | ₹1,40,000 | Allowed – passenger transport |
| Manufacturer | Truck for transporting goods | ₹3,60,000 | Allowed – transport of goods |
| Manufacturer | Factory canteen meals (Factories Act obligation) | ₹54,000 | Allowed – obligatory, subject to recovery from employees treatment |
| IT company | Team dinner at a restaurant | ₹18,000 | Blocked |
| IT company | Group health insurance (not obligatory) | ₹1,20,000 | Blocked |
| Trader | Diwali gifts to dealers | ₹45,000 | Blocked – gift |
| Pharma company | Free samples to doctors | ₹2,00,000 | Blocked – free samples |
| Hotel | Construction of hotel building | ₹40,00,000 | Blocked – own-account construction |
| Factory | Machinery with foundation | ₹12,00,000 | Allowed – plant and machinery |
| Company | Goods used for CSR | ₹80,000 | Blocked – CSR |
| Trader | Stock destroyed in fire | ITC earlier claimed ₹70,000 | Reverse – destroyed goods |
Reversal of ITC already claimed
If ITC was claimed on stock that is later lost, stolen, destroyed, written off or given as gift/free sample, reverse it in GSTR-3B Table 4(B)(1) in the month of the event. Inventory write-offs at year-end should be checked for ITC reversal.
Accounting tip
Blocked ITC becomes part of the cost of the expense or asset. For capital assets (e.g. a car), the blocked GST is capitalised, and income-tax depreciation is allowed on the total cost.
Common mistakes
- Claiming ITC on cars for directors because "used for business".
- Claiming ITC on civil construction of factory buildings.
- Not reversing ITC on free samples and gifts.
- Claiming ITC on employee insurance or meals that are not legally obligatory.
Key takeaway
Section 17(5) blocks credit on cars, food, insurance, construction, gifts, CSR and lost goods, subject to narrow exceptions. Review your expense ledgers against this list every month. Our GST compliance team flags blocked credits during monthly reconciliation.
Official references
Provisions discussed (summaries in our Law Library):
- CGST Act, 2017 – Section 17: Apportionment and blocked credits
Official sources to verify the current text, notifications and circulars:
Frequently asked questions
Is ITC available on a company car?
Not on motor vehicles for transport of persons with seating capacity up to 13 (including the driver), unless used for further supply, passenger transport, driving training or transport of goods. Vehicles with more than 13 seats are not blocked.
Can I claim ITC on construction of my office building?
No. ITC on goods and services used for construction of immovable property on own account (other than plant and machinery) is blocked, even if capitalised. The Finance Act, 2025 amended the law retrospectively after the Safari Retreats judgment.
Is ITC on food for employees blocked?
Yes, generally. It is allowed only where providing food is obligatory for the employer under a law in force (for example under the Factories Act canteen rules), or where the recipient uses it to make an outward supply of the same category.
Is ITC available on gifts to customers?
No. ITC on goods disposed of by way of gift or free samples is blocked.
Is ITC on a lift or air-conditioner for an office building blocked?
Items that become part of the immovable property (like lifts embedded in buildings) are often treated as blocked; movable equipment like split ACs is generally allowed. Facts matter.
Is ITC on CSR expenses blocked for all companies?
Yes, ITC on goods or services used for CSR obligations under the Companies Act is blocked from 1 October 2023.
Is ITC on employee uniforms blocked?
No. Uniforms and safety gear are business inputs and generally eligible.
This article is general information on the law as on 10 November 2026, written for educational purposes. It is not professional advice for your case. Section numbers under the Income-tax Act, 2025 should be confirmed with the official section mapping on the Income Tax Department website before use in filings.
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