Section 17(5) of GST Act: List of Blocked Input Tax Credits

Section 17(5) of GST Act: List of Blocked Input Tax Credits. The Goods and Services Tax (GST) regime allows businesses to claim Input Tax Credit (ITC) on taxes paid on purchases used for business. However, there are certain restrictions under Section 17(5) of the CGST Act, commonly referred to as "blocked credits." This article provides a complete understanding of the provisions under Section 17(5) of the GST Act and the list of blocked Input Tax Credits.
What is Section 17(5) of the GST Act?
Section 17(5) of the Central Goods and Services Tax (CGST) Act, 2017 specifies the list of ineligible or blocked ITC. That means certain goods or services on which tax is paid cannot be claimed as input credit. This is especially important for regular taxpayers who must ensure proper compliance. The objective is to restrict Input Tax Credit (ITC) claims on certain expenses that are personal, unrelated to business, or are for specific categories like motor vehicles and construction.
This section includes eleven broad clauses, each explaining the categories of goods or services where ITC cannot be availed, regardless of whether the purchase is for business purposes or not, except under specific circumstances.
Latest Updates from Union Budget 2025-26
The Union Budget 2025-26 has proposed a significant amendment under Section 17(5)(d). According to the 55th GST Council recommendations, the term "plant or machinery" has been replaced with "plant and machinery" to align it with the language used in Section 17(5)(c). Furthermore, the Explanation clause in Section 17(5) defining "plant and machinery" will now also be applicable to Section 17(5)(d).
Budget 2024 Proposed Changes
In addition to the 2025-26 update, the Government proposed other changes to Section 17(5):

Input Tax Credit (ITC) related to tax paid under Section 74 (pertaining to fraud, misstatement, or suppression of facts) will now be restricted to demands only up to FY 2023-24.

References to Section 129 (dealing with detention and seizure of goods in transit) and Section 130 (confiscation and penalties) are proposed to be removed from the blocked credit list.

Clauses Ineligible for Input Tax Credit under Section 17(5)
Clause (a): Conveyance and Transportation
Under this clause, ITC is blocked on the purchase of motor vehicles used for transporting people with seating capacity not exceeding 13 persons (including the driver). This includes:

Two-wheelers

Three-wheeler auto-rickshaws

Four-wheeler cars

Tempo travelers and buses with less than 14 seats

However, if the taxpayer is in the business of supplying such vehicles (sale, lease, rental), or runs a driving school, the ITC can be claimed.
Clause (aa): Vessels and Aircraft
This clause restricts ITC on vessels, ships, and aircraft. But if a business is involved in the resale, transport services, or training related to these, the ITC can be claimed. For example:

A cruise company or flight school can claim ITC.

A person buying a boat for personal use cannot claim ITC.

Clause (ab): Insurance and Repair Services for Vehicles
Under this clause, no ITC is allowed for general insurance, servicing, repair, and maintenance of motor vehicles, vessels, or aircraft mentioned above. But ITC is allowed if:

The buyer manufactures such vehicles.

The buyer provides general insurance services for such vehicles.

Clause (b): Food, Beverages, Health Services and Club Memberships
Input Tax Credit cannot be claimed on expenses related to:

Outdoor catering, beverages, and restaurant bills.

Cosmetic and plastic surgery, beauty treatment, and health services.

Health insurance and life insurance.

Club memberships, gym memberships, and leisure activities.

Leave travel concession (LTC) and vacation expenses for employees.

Exceptions:

ITC is available if the taxpayer is in the business of providing these services.

If such goods/services are provided to employees as a legal obligation (under labor laws), ITC is allowed.

Clause (c) and (d): Construction of Buildings and Civil Works
No ITC is allowed for goods/services used in the construction of immovable property. This includes:

Commercial or residential building construction

Renovation or repair works that are capitalized

Exceptions:

Builders and developers who construct properties for sale can claim ITC.

ITC is allowed on plant and machinery used in construction, provided it is not embedded permanently in the building.

Clause (e): Composition Taxpayers
Taxpayers registered under the Composition Scheme under Section 10 of the CGST Act cannot claim any ITC. This applies to both goods and services supplied under the composition scheme.
Clause (f): Non-Resident Taxable Persons
Non-resident taxable persons cannot claim ITC on purchases made within India, except for IGST paid on imported goods. As per Section 24, such persons must register and deposit tax in advance before making supplies.
Clause (g): Personal Consumption
ITC is not allowed on goods or services used for personal use. For example, if a taxpayer buys a mobile phone for both business and personal use, ITC can only be claimed proportionally for the business part.
Clause (h): Lost, Stolen or Gifted Goods
No ITC is allowed if the goods are:

Lost or stolen

Destroyed or written off

Given away as gifts or free samples

For instance, free promotional items or discounts offered in the form of free goods will not qualify for ITC.
Clause (i): ITC on Fraudulent Claims
ITC cannot be claimed in cases of fraud or misstatement. This includes:

Wrong or excess claim of ITC

Claiming ITC on invoices without receipt of goods/services

Using fake invoices or non-compliant vendors

The taxpayer must reverse such wrongly claimed ITC along with applicable interest and penalties.
What is the Reversal Under Section 17(5)?
If a taxpayer mistakenly avails ITC on items mentioned in Section 17(5), such ITC must be reversed. The reversal should be done in the GSTR-3B return for the month in which the error is noticed. In addition, interest at the rate of 24% per annum must be paid from the date of wrongful claim till the date of reversal.
Failing to reverse such credits may lead to notices, penalties, and disallowance of refunds.
Reporting of Blocked Input Tax Credit in GSTR-3B
The ineligible ITC under Section 17(5) of GST Act must be reported in Table 4(B) of GSTR-3B return. Earlier, such ineligible ITC was also reported in Table 4(D), but from July 5, 2022, only Table 4(B) reporting is required.
Steps for correct reporting:

Compare purchase details in GSTR-2B with your books.

Identify items falling under blocked ITC as per Section 17(5).

Report and reverse such ITC in Table 4(B).

Timely correction and compliance reduce the risk of penalties and maintain a clean compliance record.
What Happens If You Violate Section 17(5)?
Failure to comply with Section 17(5) of the GST Act leads to:

Reversal of the ineligible ITC amount

Interest payment at 24% per annum

Penalty proceedings under GST law in case of intentional fraud

This makes it crucial to maintain clean records and perform monthly reconciliation of eligible and ineligible credits.
Where to Find the List of Ineligible ITC Under Section 17(5)?
Taxpayers can use the GSTR-2B form (auto-generated by the GST portal) to find:

List of purchases for a particular tax period

Details of ITC available and ITC not available

Transactions tagged under Section 17(5) as ineligible

Maintaining internal books in sync with GSTR-2B ensures accuracy. Seek help from GST professionals to avoid claiming ITC that is not permissible.
Conclusion
Section 17(5) of GST Act plays an important role in determining what Input Tax Credit can be claimed by businesses. Misinterpreting these clauses can result in major compliance issues, financial reversals, and penalties. Hence, a business must stay updated with changes, especially post-Union Budget amendments and GST Council recommendations. Professional consultation and monthly reconciliation with GSTR-2B can go a long way in ensuring proper GST compliance.
At Compliance Calendar LLP, our GST experts assist you in understanding the nuances of Section 17(5), help with return filing, and offer end-to-end GST compliance services.
For any queries or help with GST compliance, reach out to us at info@ccoffice.in or call +91-9988424211.

The Goods and Services Tax (GST) regime allows businesses to claim Input Tax Credit (ITC) on taxes paid on purchases used for business. However, there are certain restrictions under Section 17(5) of the CGST Act, commonly referred to as "blocked credits." This article provides a complete understanding of the provisions under Section 17(5) of the GST Act and the list of blocked Input Tax Credits.

What is Section 17(5) of the GST Act?

Section 17(5) of the Central Goods and Services Tax (CGST) Act, 2017 specifies the list of ineligible or blocked ITC. That means certain goods or services on which tax is paid cannot be claimed as input credit. This is especially important for regular taxpayers who must ensure proper compliance. The objective is to restrict Input Tax Credit (ITC) claims on certain expenses that are personal, unrelated to business, or are for specific categories like motor vehicles and construction.

This section includes eleven broad clauses, each explaining the categories of goods or services where ITC cannot be availed, regardless of whether the purchase is for business purposes or not, except under specific circumstances.

Latest Updates from Union Budget 2025-26

The Union Budget 2025-26 has proposed a significant amendment under Section 17(5)(d). According to the 55th GST Council recommendations, the term "plant or machinery" has been replaced with "plant and machinery" to align it with the language used in Section 17(5)(c). Furthermore, the Explanation clause in Section 17(5) defining "plant and machinery" will now also be applicable to Section 17(5)(d).

Budget 2024 Proposed Changes

In addition to the 2025-26 update, the Government proposed other changes to Section 17(5):

Input Tax Credit (ITC) related to tax paid under Section 74 (pertaining to fraud, misstatement, or suppression of facts) will now be restricted to demands only up to FY 2023-24.
References to Section 129 (dealing with detention and seizure of goods in transit) and Section 130 (confiscation and penalties) are proposed to be removed from the blocked credit list.

Clauses Ineligible for Input Tax Credit under Section 17(5)

Clause (a): Conveyance and Transportation

Under this clause, ITC is blocked on the purchase of motor vehicles used for transporting people with seating capacity not exceeding 13 persons (including the driver). This includes:

Two-wheelers
Three-wheeler auto-rickshaws
Four-wheeler cars
Tempo travelers and buses with less than 14 seats

However, if the taxpayer is in the business of supplying such vehicles (sale, lease, rental), or runs a driving school, the ITC can be claimed.

Clause (aa): Vessels and Aircraft

This clause restricts ITC on vessels, ships, and aircraft. But if a business is involved in the resale, transport services, or training related to these, the ITC can be claimed. For example:

A cruise company or flight school can claim ITC.
A person buying a boat for personal use cannot claim ITC.

Clause (ab): Insurance and Repair Services for Vehicles

Under this clause, no ITC is allowed for general insurance, servicing, repair, and maintenance of motor vehicles, vessels, or aircraft mentioned above. But ITC is allowed if:

The buyer manufactures such vehicles.
The buyer provides general insurance services for such vehicles.

Clause (b): Food, Beverages, Health Services and Club Memberships

Input Tax Credit cannot be claimed on expenses related to:

Outdoor catering, beverages, and restaurant bills.
Cosmetic and plastic surgery, beauty treatment, and health services.
Health insurance and life insurance.
Club memberships, gym memberships, and leisure activities.
Leave travel concession (LTC) and vacation expenses for employees.

Exceptions:

ITC is available if the taxpayer is in the business of providing these services.
If such goods/services are provided to employees as a legal obligation (under labor laws), ITC is allowed.

Clause (c) and (d): Construction of Buildings and Civil Works

No ITC is allowed for goods/services used in the construction of immovable property. This includes:

Commercial or residential building construction
Renovation or repair works that are capitalized

Exceptions:

Builders and developers who construct properties for sale can claim ITC.
ITC is allowed on plant and machinery used in construction, provided it is not embedded permanently in the building.

Clause (e): Composition Taxpayers

Taxpayers registered under the Composition Scheme under Section 10 of the CGST Act cannot claim any ITC. This applies to both goods and services supplied under the composition scheme.

Clause (f): Non-Resident Taxable Persons

Non-resident taxable persons cannot claim ITC on purchases made within India, except for IGST paid on imported goods. As per Section 24, such persons must register and deposit tax in advance before making supplies.

Clause (g): Personal Consumption

ITC is not allowed on goods or services used for personal use. For example, if a taxpayer buys a mobile phone for both business and personal use, ITC can only be claimed proportionally for the business part.

Clause (h): Lost, Stolen or Gifted Goods

No ITC is allowed if the goods are:

Lost or stolen
Destroyed or written off
Given away as gifts or free samples

For instance, free promotional items or discounts offered in the form of free goods will not qualify for ITC.

Clause (i): ITC on Fraudulent Claims

ITC cannot be claimed in cases of fraud or misstatement. This includes:

Wrong or excess claim of ITC
Claiming ITC on invoices without receipt of goods/services
Using fake invoices or non-compliant vendors

The taxpayer must reverse such wrongly claimed ITC along with applicable interest and penalties.

What is the Reversal Under Section 17(5)?

If a taxpayer mistakenly avails ITC on items mentioned in Section 17(5), such ITC must be reversed. The reversal should be done in the GSTR-3B return for the month in which the error is noticed. In addition, interest at the rate of 24% per annum must be paid from the date of wrongful claim till the date of reversal.

Failing to reverse such credits may lead to notices, penalties, and disallowance of refunds.

Reporting of Blocked Input Tax Credit in GSTR-3B

The ineligible ITC under Section 17(5) of GST Act must be reported in Table 4(B) of GSTR-3B return. Earlier, such ineligible ITC was also reported in Table 4(D), but from July 5, 2022, only Table 4(B) reporting is required.

Steps for correct reporting:

Compare purchase details in GSTR-2B with your books.
Identify items falling under blocked ITC as per Section 17(5).
Report and reverse such ITC in Table 4(B).

Timely correction and compliance reduce the risk of penalties and maintain a clean compliance record.

What Happens If You Violate Section 17(5)?

Failure to comply with Section 17(5) of the GST Act leads to:

Reversal of the ineligible ITC amount
Interest payment at 24% per annum
Penalty proceedings under GST law in case of intentional fraud

This makes it crucial to maintain clean records and perform monthly reconciliation of eligible and ineligible credits.

Where to Find the List of Ineligible ITC Under Section 17(5)?

Taxpayers can use the GSTR-2B form (auto-generated by the GST portal) to find:

List of purchases for a particular tax period
Details of ITC available and ITC not available
Transactions tagged under Section 17(5) as ineligible

Maintaining internal books in sync with GSTR-2B ensures accuracy. Seek help from GST professionals to avoid claiming ITC that is not permissible.

Conclusion

Section 17(5) of GST Act plays an important role in determining what Input Tax Credit can be claimed by businesses. Misinterpreting these clauses can result in major compliance issues, financial reversals, and penalties. Hence, a business must stay updated with changes, especially post-Union Budget amendments and GST Council recommendations. Professional consultation and monthly reconciliation with GSTR-2B can go a long way in ensuring proper GST compliance.

At Compliance Calendar LLP, our GST experts assist you in understanding the nuances of Section 17(5), help with return filing, and offer end-to-end GST compliance services.

For any queries or help with GST compliance, reach out to us at info@ccoffice.in or call +91-9988424211.