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GST · Input tax creditGST ITC on cars, repairs, insurance and employee expenses
Businesses spend heavily on vehicles and employee costs – and many claim GST credit on them wrongly. Here is when ITC is allowed on cars, repairs, insurance, cabs and employee expenses, based on Section 17(5) and CBIC clarifications.
Vehicles and employee welfare are where GST credit claims go wrong most often. The rules sit in Section 17(5)(a), (ab) and (b) of the CGST Act, with CBIC circulars clarifying several areas.
Motor vehicles
| Vehicle and use | ITC on purchase | ITC on repair/insurance |
|---|---|---|
| Car (≤ 13 seats) for directors, staff, marketing | Blocked | Blocked |
| Car for resale (dealer) | Allowed | Allowed |
| Car for driving school | Allowed | Allowed |
| Taxi used for passenger transport business | Allowed | Allowed |
| Bus (> 13 seats) for staff transport | Allowed | Allowed |
| Truck / goods carriage | Allowed | Allowed |
| Car used by manufacturer of vehicles / insurer (for repair) | Allowed for specified businesses | Allowed |
Rent-a-cab and vehicle hire
Leasing, renting or hiring of motor vehicles (≤ 13 seats) is blocked under 17(5)(b)(i), except where: - the employer is obliged by law to provide transport to employees (e.g. some State shop and establishment rules for night shifts), or - the recipient is in the same business (e.g. a cab aggregator using hired vehicles for passenger transport).
Employee expenses
| Expense | ITC | Notes |
|---|---|---|
| Food, catering, canteen | Blocked, unless obligatory under law | Factories Act canteen: allowed, but the employee contribution part is not a supply (Circular 172) |
| Health insurance for employees | Blocked, unless obligatory (e.g. ESI-exempt employers required to insure under law) | |
| Life insurance | Blocked, unless obligatory | |
| Club / gym membership | Blocked | |
| Leave travel / vacation | Blocked | |
| Business travel (air, hotel for official work) | Allowed (hotel with business GSTIN) | Ask hotels and airlines to bill your GSTIN |
| Uniforms, safety equipment | Allowed | Business use |
| Mobile phones, laptops | Allowed | Exclude personal use |
| Training and conferences | Allowed | |
| Diwali gifts above ₹50,000 per employee | Blocked (gift) | Below ₹50,000 – not a supply; ITC still blocked as gift |
Worked example
Example: Codeleaf Technologies Pvt Ltd incurs in a quarter:
| Expense | GST | ITC? | Reason |
|---|---|---|---|
| Two cars for directors | ₹4,20,000 | No | 17(5)(a) |
| Car servicing and insurance | ₹38,000 | No | 17(5)(ab) |
| Night-shift cab service (State law obliges transport for women in night shift) | ₹72,000 | Yes | Obligatory under law |
| Day-shift cab service | ₹40,000 | No | Not obligatory |
| Office pantry snacks | ₹12,000 | No | Food |
| Group health insurance | ₹1,10,000 | No | Not obligatory |
| Laptops for developers | ₹3,60,000 | Yes | Capital goods for business |
| Hotel stay for client visit (company GSTIN on invoice) | ₹14,400 | Yes | Business travel |
| Team offsite resort | ₹56,000 | No | Food, recreation – personal consumption |
ITC allowed: ₹72,000 + ₹3,60,000 + ₹14,400 = ₹4,46,400. Blocked: ₹6,76,000.
Partial use and apportionment
Where a phone or laptop is used partly for personal purposes, ITC attributable to personal use must be reversed (Rule 42). For simplicity, many companies provide devices only for official use under a policy.
Recovery from employees
Where employees pay a part of canteen or transport cost, CBIC has clarified that amounts recovered under the employment contract are generally not a supply by the employer. Where the employer acts merely as an agent for a third-party canteen, no GST arises on the employee share.
Common mistakes
- Claiming ITC on director cars and their fuel/repairs.
- Claiming health insurance ITC without a legal obligation.
- Not getting hotel invoices on the company GSTIN.
- Treating all cab services as obligatory.
Key takeaway
Most car, food, insurance and leisure-related credits are blocked; business travel, devices, uniforms and legally required facilities are generally allowed. Keep a policy-driven expense coding in your books. Our GST team reviews expense heads for ITC eligibility as part of monthly compliance.
Official references
Official sources to verify the current text, notifications and circulars:
Frequently asked questions
Can I claim ITC on repairs of a company car?
No, if ITC on the car itself is blocked. Repair, servicing and insurance of blocked vehicles are also blocked under Section 17(5)(ab).
Is ITC available on cab services for employees?
Leasing or renting of motor vehicles (seating up to 13) is blocked unless obligatory under law for the employer, or used for an outward supply of the same category.
Is ITC on employees' mobile phones allowed?
Mobile phones and laptops given to employees for business use are generally eligible inputs/capital goods, as they are not in the blocked list. Personal use portions should be excluded.
Do I pay GST on perquisites given to employees?
Perquisites provided under the contract of employment are not supplies (CBIC Circular 172/04/2022). Gifts up to ₹50,000 per employee per year are not supplies either.
Is ITC on a pickup truck allowed?
Yes. Goods carriages are not blocked; ITC on purchase, repairs and insurance is available if used for business.
Is ITC available on fuel for company cars?
Petrol and diesel are outside GST, so no ITC arises on fuel.
Is ITC on electric cars for directors allowed?
No, if seating capacity is up to 13 and not used for the exempted purposes; electric vehicles are not treated differently for 17(5)(a).
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.
Have a tax, GST or business question?
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