Section 17(5) of the Central Goods and Services Tax (CGST) Act lists certain goods and services on which you cannot claim Input Tax Credit (ITC), even if they are used for business.
Think of it like this:
Just because you paid GST on something doesn’t mean you can get credit for it. Some expenses are blocked — like buying a car for personal use or spending on entertainment.
What is Blocked Credit?
Blocked credit means GST paid on some purchases or expenses cannot be claimed as ITC.
Categories of Blocked Credit Under Section 17(5)
Let’s break down the key categories:
1. Motor Vehicles and Conveyances
No ITC on cars, bikes, or other vehicles unless:
- Used for transport of goods
- Used for transport of passengers (like taxis)
- Used for driver training schools
🧾 Example: You buy a car for your manager’s use – no ITC.
But if it’s a delivery van for your logistics business – ITC allowed.
2. Food, Beverages, and Outdoor Catering
ITC is not allowed on:
- Food and beverages
- Outdoor catering
- Beauty treatments
- Health services
- Cosmetic and plastic surgery
❗ Exception: ITC is allowed if used for providing the same service (e.g., a caterer buying food for catering business).
3. Membership of Clubs and Fitness Centers
No ITC on:
- Gym memberships
- Sports club subscriptions
- Health clubs
4. Rent-a-Cab, Life & Health Insurance
ITC is not allowed on:
- Cab services
- Life insurance
- Health insurance
❗ Exception: Allowed if the company is legally required to provide it to employees (under labour laws).
5. Travel Benefits to Employees
ITC is not available on travel or vacation expenses provided to employees, like holiday packages or hotel stays.
6. Works Contract Services
ITC is not allowed if used for:
- Building a structure or immovable property
- Unless it’s for resale or for providing same services (like a builder using works contract services)
7. Construction of Immovable Property
No ITC if you build or construct something (building, office, etc.) for your own use – even if used for business.
❗ Exception: If the property is constructed to resell, ITC may be allowed.
8. Goods/Services for Personal Use
Any goods or services used for personal use or consumption are not eligible for ITC.
9. Free Samples or Gifts
No ITC on goods that are:
- Given as free samples
- Used as gifts
- Lost, stolen, or destroyed
10. Fraudulent or Non-Compliant Transactions
ITC is blocked if:
- You claimed it without receiving goods or services
- The supplier didn’t pay tax to the government
- It’s linked to fraud or fake invoices
🧾 Summary Table of Blocked ITC Under Section 17(5)
| Category | Is ITC Allowed? |
|---|---|
| Cars for office use | ❌ Not allowed |
| Transport trucks | ✅ Allowed |
| Food & beverages (not resale) | ❌ Not allowed |
| Cab services (for staff) | ❌ Not allowed |
| Cab services (for cab business) | ✅ Allowed |
| Building office for own use | ❌ Not allowed |
| Gym membership for employees | ❌ Not allowed |
| Goods lost/destroyed | ❌ Not allowed |
Conclusion
Section 17(5) clearly defines what’s not eligible for ITC under GST. If you’re running a business, make sure you claim ITC only on allowed items. Knowing the blocked credit categories helps avoid legal trouble and GST penalties.
