Block Credit – Section 17(5) of CGST Act 2017

Background – Section 17(5) of the CGST Act, 2017

The Goods and Services Tax (GST), implemented in India from July 1, 2017, introduced a uniform indirect tax regime with the promise of seamless input tax credit (ITC) across the supply chain.

However, to prevent revenue leakage and misuse of credit provisions, Section 17(5) of the CGST Act was introduced to specify a list of “blocked credits” — i.e., scenarios where ITC is not available, even if the expenses are incurred in the course or furtherance of business. These restrictions aim to strike a balance between business facilitation and revenue protection.

Section 17(5) of CGST Act 2017:

Notwithstanding anything contained in sub-section (1) of section 16 and sub-section (1) of section 18, input tax credit shall not be available in respect of the following, namely:-

1. Section 17(5)(a) of CGST Act 2017 :

Motor vehicles for transportation of persons → having approved seating capacity of not more than thirteen persons (including the driver),

→ Except when they are used for making the following taxable supplies, namely:-

(A) further supply of such motor vehicles; or

(B) transportation of passengers; or

(C) imparting training on driving such motor vehicles;

2. Section 17(5)(aa) of CGST Act 2017 :

Vessels and aircraft

→ except when they are used-

(i) for making the following taxable supplies, namely:-

(A) further supply of such vessels or aircraft; or

(B) transportation of passengers; or

(C) imparting training on navigating such vessels; or

(D) imparting training on flying such aircraft;

(ii) for transportation of goods;

3. Section 17(5)(ab) of CGST Act 2017 :

Services of general insurance, servicing, repair and maintenance in so far as they relate to motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa):

Provided that the input tax credit in respect of such services shall be available-

(i) where the motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa) are used for the purposes specified therein;

(ii) where received by a taxable person engaged-

(I) in the manufacture of such motor vehicles, vessels or aircraft; or

(II) in the supply of general insurance services in respect of such motor vehicles, vessels or aircraft insured by him;]

4. Section 17(5)(b) of CGST Act 2017 :

the following supply of goods or services or both-

(i) Section 17(5)(b)(i) of CGST Act 2017 :

• • Food and beverages,
  • Outdoor catering,
  • Beauty treatment,
  • Health services,
  • Cosmetic and plastic surgery,
  • Leasing, renting or hiring of motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa) except when used for the purposes specified therein, life insurance and health insurance:

Provided that the input tax credit in respect of such goods or services or both shall be available where an inward supply of such goods or services or both is used by a registered person for making an outward taxable supply of the same category of goods or services or both or as an element of a taxable composite or mixed supply;

(ii) Section 17(5)(b)(i) of CGST Act 2017 :

Membership of a club, health and fitness centre; and

(iii) Section 17(5)(b)(i) of CGST Act 2017 :

Travel benefits extended to employees on vacation such as leave or home travel concession:

Provided that the input tax credit in respect of such goods or services or both shall be available, where it is obligatory for an employer to provide the same to its employees under any law for the time being in force.

5. Section 17(5)(c) of CGST Act 2017 :

Works contract services when supplied for construction of an immovable property (other than plant and machinery) → except where it is an input service for further supply of works contract service;

6. Section 17(5)(d) of CGST Act 2017:

Goods or services or both received by a taxable person for construction of an immovable property (other than plant or machinery) on his own account including when such goods or services or both are used in the course or furtherance of business.

Explanation.- For the purposes of clauses (c) and (d), the expression “construction” includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalisation, to the said immovable property;

7. Section 17(5)(e) of CGST Act 2017 :

Goods or services or both on which tax has been paid under section 10;

8. Section 17(5)(f) of CGST Act 2017 :

Goods or services or both received by a non-resident taxable person

→ except on goods imported by him;

9. Section 17(5)(fa)¹ of CGST Act 2017 :

Goods or services or both received by a taxable person, which are used or intended to be used for activities relating to his obligations under corporate social responsibility referred to in section 135 of the Companies Act, 2013;]

10. Section 17(5)(g) of CGST Act 2017 :

Goods or services or both used for personal consumption;

11. Section 17(5)(g) of CGST Act 2017 :

Goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples; and

12. Section 17(5)(i) of CGST Act 2017 :

Any tax paid in accordance with the provisions of ²[section 74 in respect of any period up to Financial Year 2023-24]

Explanation.- For the purposes of this Chapter and Chapter VI, the expression “plant and machinery” means apparatus, equipment, and machinery fixed to earth by foundation or structural support that are used for making outward supply of goods or services or both and includes such foundation and structural supports but excludes-

(i) land, building or any other civil structures;

(ii) telecommunication towers; and

(iii) pipelines laid outside the factory premises.

Q&A on Section 17(5) of the CGST Act, 2017 – Blocked ITC Provisions ³

Q1. What is the objective of Section 17(5) of the CGST Act, 2017?

A1. Section 17(5) aims to restrict input tax credit (ITC) in certain cases to prevent revenue leakage and misuse of credit, despite the general availability of ITC for business-related expenses.

Q2. Is ITC available on motor vehicles for transportation of persons?

A2. ITC is blocked on motor vehicles used for transportation of persons having seating capacity ≤13 (including driver), except when used for:

(A) further supply of such vehicles,

(B) transportation of passengers, or

(C) training on driving such vehicles.

Q3. Can ITC be claimed on vessels and aircraft?

A3. ITC is not available on vessels and aircraft except when used for:

(i) Taxable supply of the same (further supply), passenger transport, or training on navigation/flying,

(ii) Transportation of goods.

Q4. What is the ITC position on general insurance, servicing, and maintenance of motor vehicles, vessels, or aircraft?

A4. ITC is blocked unless:

(i) The vehicle/vessel/aircraft is used for eligible purposes under clauses (a) or (aa), or

(ii) The recipient is a manufacturer or insurer of such motor vehicles, vessels, or aircraft.

Q5. Is ITC allowed on food, beverages, outdoor catering, and similar personal services?

A5. ITC is not available on services like:

• Food and beverages,
• Outdoor catering,
• Beauty treatment,
• Health services,
• Cosmetic or plastic surgery,
• Leasing/renting of vehicles (as per clause a/aa),
• Life and health insurance, except when:
• The same category of supply is outwardly provided, or
• It forms part of a taxable composite or mixed supply.

Q6. Can ITC be claimed on club membership or fitness center services?

A6. No, ITC is blocked on membership of a club, health and fitness center.

Q7. Is ITC available on travel benefits for employees (LTC, etc.)?

A7. ITC is not available on travel benefits on vacation (leave/home travel) unless it is obligatory under a statutory law.

Q8. Can ITC be claimed on works contract services used for construction of immovable property?

A8. ITC is not available on works contract services for construction of immovable property (other than plant and machinery), except when it is an input for further supply of works contract service.

Q9. Is ITC available on goods/services used for construction of immovable property on own account?

A9. No, ITC is blocked even if used in course or furtherance of business, if capitalised in the books. Construction includes renovation, addition, repair, or alteration.

Q10. Can a composition taxpayer claim ITC?

A10. No, ITC is not available on goods/services on which tax has been paid under Section 10 (Composition Scheme).

Q11. Can a non-resident taxable person claim ITC?

A11. ITC is not available to non-resident taxable persons, except on imported goods.

Q12. Is ITC allowed on CSR-related expenses?

A12. No, ITC is blocked on goods/services used for activities under CSR obligations as per Section 135 of the Companies Act, 2013.

Q13. Can ITC be claimed for goods/services used for personal consumption?

A13. No, ITC is not available on goods or services used for personal consumption.

Q14. Is ITC allowed on goods lost, stolen, destroyed, or given away as gifts/samples?

A14. No, ITC is blocked on lost, stolen, destroyed, written-off goods, or those disposed of as gifts/free samples.

Q15. Can ITC be availed on tax paid under Section 74?

A15. No, any tax paid under Section 74 (relating to fraud or willful misstatement) up to FY 2023-24 is not eligible for ITC.

Q16. What is excluded from the definition of “plant and machinery” under this section?

A16. “Plant and machinery” excludes:

(i) Land, building or civil structures,

(ii) Telecom towers,

(iii) Pipelines laid outside factory premises.

Q17. Can a company claim ITC on business class air tickets for official travel?

A17. Yes, ITC is allowed on air travel for business purposes, provided the invoice is in the company’s name and used in the course or furtherance of business.

Q18. Is ITC available on rent-a-cab services for employee pick-up and drop?

A18. No, ITC is blocked on rent-a-cab services, unless:

• It is obligatory under law (e.g., factory compliance under Factories Act), or
• The company is in the business of supplying such service.

Q19. Can a hotel claim ITC on construction of its building?

A19. No, ITC is blocked on construction of immovable property on own account, including hotels and commercial buildings, even if capitalised.

Q20. Is ITC allowed on machinery foundation or structural support for machinery?

A20. Yes, ITC is allowed on goods/services used to build foundation and structural support of plant and machinery, as per explanation to Section 17.

Q21. Can a company claim ITC on laptop purchases for staff use?

A21. Yes, ITC is allowed on laptops/computers if used in the course or furtherance of business and not for personal use.

Q22. Is ITC allowed on free promotional goods distributed by a company?

A22. No, ITC is blocked on goods distributed as free samples or gifts, even if given for business promotion.

Q23. Can a registered person claim ITC on goods purchased for exhibitions and later brought back?

A23. Yes, if the goods are not consumed or disposed of and are returned, ITC may be allowed, subject to use in business and proper documentation.

Q24. Is ITC available on mobile phones purchased for employees for official use?

A24. Yes, ITC is allowed if the phones are used exclusively for business purposes and invoiced in the company’s name.

Q25. Can ITC be claimed on security services hired for the office premises?

A25. Yes, ITC is allowed on security services if used for business operations.

Q26. Is ITC allowed on employee uniform or protective gear?

A26. Yes, ITC is allowed on safety gear, helmets, shoes, or uniforms if used by employees in the course of business (e.g., in manufacturing units).

Q27. Can a company claim ITC on insurance of company-owned cars?

A27. ITC on motor vehicle insurance is blocked, unless:

• The vehicle is used for eligible transport purposes under Section 17(5), or
• The company is in the insurance business.

Q28. Is ITC available on catering services for employees during working hours?

A28. No, ITC is blocked, unless providing such service is obligatory under a statutory provision (e.g., under Factories Act).

Q29. Can ITC be claimed on civil works of repair and maintenance in office?

A29. No, if capitalised and related to immovable property, ITC is blocked, even if it’s for repair.

Q30. Is ITC allowed on software purchased via cloud subscription?

A30. Yes, ITC is allowed on cloud-based software or SaaS subscriptions, provided it’s used for business and not personal use.

1 Inserted (w.e.f. 1st October, 2023 vide Notification No. 28/2023-C.T., dated 31st July, 2023) by s. 139 of The Finance Act 2023 (No. 8 of 2023).

2Substituted by section 119 of  The Finance Act (No. 2) Act, 2024 No. 15 of 2024 dated 16.08.2024.

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3 Disclaimer: The above Q&A has been generated with the assistance of AI and is intended solely for informational and educational purposes. While efforts have been made to ensure accuracy, there may be inadvertent errors or omissions. Before relying on any information or making business or tax-related decisions, it is strongly advised to consult the relevant provisions of law, official notifications, or seek guidance from a qualified professional.