Understanding Section 17(5) of the CGST Act (2025) is critical for taxpayers aiming to maintain accurate GST compliance. This section plays a crucial role in defining what constitutes blocked credit, helping businesses avoid common errors, prevent revenue leakage, and ensure legitimate Input Tax Credit (ITC) claims.
What is Blocked Credit Under Section 17(5) of CGST Act?
Blocked credit refers to ITC that a registered person cannot claim, even if GST has been paid on those goods or services. Section 17(5) outlines various cases where ITC is restricted, meaning you cannot use such tax payments to offset your output tax liability.
Why Is Section 17(5) Important?
- Prevents misuse: Stops ITC claims on personal or unrelated business expenses
- Protects government revenue: Ensures only genuine business expenses qualify
- Maintains GST integrity: Reinforces ITC availability only for legitimate supply chains
- Deters fraud: Blocks ITC in cases of fraud or tax evasion
Summary: Section 17(5) preserves the fairness and transparency of the GST framework by outlining clearly what is not eligible for ITC.
Blocked Credit List Under Section 17(5) of CGST Act
The blocked credits under Section 17(5) are classified into specific categories or clauses (a) to (i). Let’s explore each one with practical clarity and compliance perspective.
1. Motor Vehicles and Conveyances – Clause (a)
Blocked: ITC on motor vehicles (seating capacity ≤13 persons including driver), vessels, and aircraft.
Exceptions (ITC Allowed If):
- For resale (supply) of such vehicles
- For transportation of passengers
- For training services (e.g., driving school)
- For transport of goods
- For manufacture/insurance of such vehicles
2. Food, Beverages & Personal Services – Clause (b)
Blocked:
- Food and beverages
- Outdoor catering
- Beauty treatment
- Health services
- Cosmetic and plastic surgery
- Club memberships
- Life and health insurance
Exceptions (ITC Allowed If):
- As part of a composite/mixed supply
- When provided under a statutory obligation (e.g., mandatory employee insurance)
3. Works Contract Services – Clause (c)
Blocked: ITC on works contract services for construction of immovable property, even if used for business.
Exception:
- If the recipient is in the same line of business, e.g., further supply of works contract services
4. Construction of Immovable Property – Clause (d)
Blocked: ITC on goods/services used for own construction of immovable property, even for business purposes.
Exception:
- Plant and Machinery is not covered under blocked credit here
| Covered as Immovable Property | Not Covered (Eligible for ITC) |
|---|---|
| Buildings, civil structures | Machinery fixed to foundation |
| Telecom towers | Factory-installed pipelines |
| Land development | Equipment used in manufacturing |
5. Composition Taxpayers – Clause (e)
Blocked: ITC is not allowed for taxpayers under the Composition Scheme.
| Feature | Composition Scheme |
| ITC eligibility | Not allowed |
| Tax payment | Fixed rate on turnover |
| Return filing | Quarterly |
6. Non-Resident Taxable Persons – Clause (f)
Blocked: Cannot claim ITC on domestic purchases.
Exception:
- ITC allowed on IGST paid on imports only
7. Personal Consumption – Clause (g)
Blocked: ITC on goods or services used for personal purposes.
Exception:
- Proportionate ITC is allowed for business-use portion, if mixed use
8. Lost, Stolen, or Destroyed Goods – Clause (h)
Blocked: No ITC on goods that are:
- Lost
- Stolen
- Destroyed
- Written off
- Given as gifts or free samples
9. Fraudulent Transactions – Clause (i)
Blocked: ITC on tax paid due to:
- Fraudulent claims
- Excessive refunds
- Willful misstatements
- Confiscated or seized goods
| Offense Type | ITC Eligibility |
| Tax evasion | Not allowed |
| Misuse of refund provisions | Not allowed |
| Seizure of goods | Not allowed |
What If You Wrongfully Claim ITC under Section 17(5)?
Consequences of Non-Compliance:
- Reversal: Wrongly claimed ITC must be reversed in GSTR
- Interest: Pay interest @ 24% per annum
- Duration: From the date of wrongful claim until the date of reversal
Example:
If you claimed Rs. 50,000 ITC incorrectly on Jan 1, 2025, and reversed it on Apr 1, 2025, interest of Rs. 3,000 (approx.) would apply for 3 months.
FAQ: People Also Ask
What is blocked ITC under GST?
Blocked ITC refers to Input Tax Credit that cannot be claimed due to restrictions under Section 17(5) of the CGST Act.
Can I claim ITC on car purchases in 2025?
Generally, no, unless it’s used for passenger transport, resale, training, or goods movement.
Is ITC available on insurance premiums?
Only when mandatory under law or used in providing taxable services involving insurance.
Are free samples eligible for ITC?
No. ITC is not allowed on goods given away as gifts or samples.
What if I mistakenly claimed ineligible ITC?
You must reverse the credit and pay 24% interest from the date of the claim.
