Input Tax Credit (ITC) is the backbone of the GST framework. It empowers businesses to reduce their output tax liability by claiming credit on taxes paid for goods and services used in their operations.

But here’s the catch: Not every input is qualified.

There are certain cases where ITC is explicitly disallowed, called Blocked Credit under Section 17(5) of the CGST Act. If you're not careful, claiming ITC on these items can result in penalties, interest, and disallowance during audits.

Let’s break it down simply and clearly.

What is Blocked Credit?

Blocked Credit refers to ITC that you cannot claim, even if you've paid GST on those goods or services.

Legal Reference: Section 17(5) of the CGST Act, 2017
This section lists specific goods and services on which ITC is not available, regardless of their use in business.

List of Blocked ITC Items (Section 17(5))

Motor Vehicles (Clause a)

(Less than 25cc is not a motor vehicle, more than 25cc is a motor vehicle)

Vehicle Type	ITC Allowed?	Exception
Motor vehicle for transportation of persons (≤13 seats)	No	If used for transportation, imparting training on driving, or providing taxable service




Examples:

• Car for Director = No ITC
• Delivery van = ITC allowed

Vessels & Aircraft (Clause aa & ab)

ITC Blocked unless used exclusively for:

• Transport of goods/passengers
• Flying/driving training




Insurance, Servicing & Maintenance (Vehicles)

Blocked for vehicles, aircraft, vessels unless:

• The vehicle itself is eligible for ITC




Food, Catering, Beauty & Wellness (Clause b)

Service	ITC Allowed?	Exception
Food, beverages, catering	No	If you’re in the catering business
Beauty treatment, cosmetic surgery	No	If it’s part of your outward supply






Club & Gym Memberships (Clause c)

ITC not allowed for:

• Club fees
• Gym/wellness center subscriptions for employees

Exemption:

Provided the same is mandated by law, then ITC is available on the same.

Rent-a-Cab, Life & Health Insurance (Clause b)

ITC not allowed unless:

• Mandated by law (e.g., Factories Act)
• Provided as a taxable outward supply



Works Contract for Immovable Property (Clause d)

• No ITC if it’s for your own construction (like building an office).
• ITC is allowed only if you’re providing works contract services to others. (i.e., outward taxable supply)
• ITC allowed on construction of plant and machinery which includes telecommunicator towers and pipelines laid outside the factory.



Goods/Services for Construction (Own Use) (Clause c)

No ITC on cement, steel, or contractor services for your own factory, warehouse, or office.

Employee Vacation & LTA (Clause e)

No ITC on:

• Leave Travel Allowance
• Holiday packages, even if part of policy

Exemption:

Provided the same is mandated by law, then ITC is available on the same.

Personal Consumption (Clause g)

Using business purchases for personal use?
No ITC. Period.

Miscellaneous that cannot be categorised under a group:

• Goods – lost, stolen, destroyed, freebies
• Goods / services received for fulfilment of CSR
• No ITC of NRTP except on goods imported by him.
• If a registered person pays tax under the composition scheme, then ITC is not available on input or input services available by him.

Quick Reference Table

Expense Type	ITC Allowed?	Exceptions
Motor vehicle (≤13 seats)	No	Transport/training use
Food & beverages	No	Yes, if used in providing same outward supply
Health & fitness memberships	No	None
Construction of immovable property	No	None
Works contract (own use)	No	Yes, if providing similar service
Travel benefits for employees	No	None
Personal consumption	No	None

What Happens If You Claim Blocked ITC?

• ITC will be reversed with interest @18%
• You may face penalties and GST notices
• Risk of poor compliance rating during audit

Real-World Examples

Scenario	ITC?
SUV bought for senior manager	Blocked
Insurance for company goods truck	Allowed
Rent-a-cab for daily employee pick-up	Blocked (unless law requires it)
Construction of your company’s new office	Blocked
Lunch for team outing or party	Blocked

How TAX360 Simplifies It for You

With TAX360, staying GST-compliant doesn’t require legal acrobatics.

Smart GST Filing: Automatically flags blocked credits during entry
ITC Eligibility Check: Based on nature of expense
Error-Free Filings: GSTR-3B, GSTR-9 with built-in checks
Audit-Ready Reports: Clean records = Peace of mind

Stay on the right side of the GST.
Let TAX360 guide your input.

Start Now at tax360.asncuniverse.com
Talk to our experts. Avoid costly mistakes before they happen.