Blocked Credits Under Section 17(5): ITC You Cannot Claim

Blocked credits are purchases on which you cannot claim GST input tax credit (ITC), even if you bought them for your business. They are listed in Section 17(5) of the CGST Act. For most small businesses, the ones that matter are passenger cars, food and beverages, club and gym memberships, building construction, personal-use items, gifts and free samples. Each has narrow exceptions, so check the list before you claim and before you reverse.

ITC is the GST you paid on purchases that you can deduct from the GST you collect on sales. Normally any business purchase qualifies. Section 17(5) is the list of exceptions.

What are blocked credits under Section 17(5)?

Clause	What is blocked	Main exceptions (ITC allowed)
(a)	Motor vehicles for carrying people, seating up to 13 including the driver	Used for further supply of such vehicles, transporting passengers, or driving training
(aa)	Vessels and aircraft	Used for further supply, passenger transport, navigation/flying training, or transporting goods
(ab)	General insurance, servicing, repair and maintenance of the above vehicles, vessels, aircraft	Vehicle itself used for an allowed purpose; or you manufacture them or insure them
(b)(i)	Food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, renting or hiring of the blocked vehicles, life and health insurance	You supply the same category, or it is part of a taxable composite or mixed supply
(b)(ii)	Membership of a club, health and fitness centre	Obligatory for an employer under a law
(b)(iii)	Travel benefits to employees on vacation (leave or home travel concession)	Obligatory for an employer under a law
(c)	Works contract services for construction of immovable property	Plant and machinery; or you are a works contractor using it for further works contract
(d)	Goods or services for construction of immovable property on your own account	Plant and machinery
(e)	Goods or services on which tax was paid under the composition scheme	None
(f)	Purchases by a non-resident taxable person	Goods imported by them
(fa)	Goods or services used for CSR obligations under the Companies Act (from 1 October 2023)	None
(g)	Goods or services for personal consumption	None
(h)	Goods lost, stolen, destroyed, written off, or given as gifts or free samples	None
(i)	Tax paid under Section 74 (fraud cases) for periods up to FY 2023-24	None

Can I claim ITC on a car for my business?

Usually no. ITC is blocked on motor vehicles for carrying people with an approved seating capacity of 13 or fewer, including the driver. That covers almost every car, SUV and MUV a small business buys.

You can claim it if you use the vehicle to:

• sell vehicles (a car dealer),
• carry passengers for a fee (a taxi or cab operator), or
• teach driving (a driving school).

Goods carriers such as trucks, tempos and delivery vans are not on the list. ITC on them is allowed when you use them for business. Vehicles that seat more than 13 people, such as a staff bus, are also outside the block.

Repairs, servicing and general insurance on a blocked car are blocked too. The exceptions are when the car itself qualifies, or when you manufacture such vehicles or insure them.

Example: A Jaipur consultancy buys a car for ₹10,00,000 + 18% GST for client visits. The ₹1,80,000 GST is blocked under Section 17(5)(a) and is added to the cost of the car in the books. A cab operator buying the same car to run a taxi service can claim it.

Is ITC on food, travel and staff welfare blocked?

Mostly yes. Section 17(5)(b) blocks:

• food and beverages and outdoor catering, such as staff lunches, client meals and office parties,
• beauty treatment, health services, cosmetic and plastic surgery,
• life and health insurance,
• club, health and fitness centre memberships,
• leave travel or home travel concession given to employees.

ITC on food, catering, beauty, health, insurance and vehicle hire is allowed if you supply the same category of service, or it forms part of a taxable composite or mixed supply. ITC on all the items in clause (b) is also allowed where a law obliges you, as the employer, to provide them to employees. Factory canteens under labour law are the common example.

Tip: Since 22 September 2025, individual life and health insurance policies are exempt from GST, so there is no GST to claim on them. Group policies an employer buys are not covered by that exemption, and ITC on them stays blocked unless the obligatory-for-employer exception applies.

Business travel such as hotel stays and air tickets for work trips is not blocked. Only vacation travel for employees is.

Is GST on building construction blocked?

Yes. That covers your office, shop, warehouse or factory building. Two clauses work together:

• 17(5)(c) blocks works contract services for building immovable property.
• 17(5)(d) blocks goods and services you use to build immovable property on your own account, even if the building is for business.

“Construction” includes reconstruction, renovation, additions, alterations and repairs, to the extent they are capitalised. Routine repairs that you expense in the profit and loss account are not caught by this rule.

The only exclusion is plant and machinery. That means apparatus, equipment and machinery fixed to earth by a foundation or structural support and used to make supplies. It excludes land, buildings, other civil structures, telecom towers and pipelines outside the factory.

Watch out: In October 2024 the Supreme Court (Safari Retreats) read the old wording “plant or machinery” more widely, which opened a door for ITC on some commercial buildings. The Finance Act 2025 replaced it with “plant and machinery” with effect from 1 July 2017, overriding that reading. Don’t claim ITC on a rented-out mall or office building on the strength of that judgment without professional advice.

What about gifts, free samples and lost stock?

Section 17(5)(h) blocks ITC on goods that are:

• lost, stolen or destroyed,
• written off, or
• given away as gifts or free samples.

If you claimed ITC when you bought the goods and later give them away or write them off, reverse that ITC in the GSTR-3B for that month.

Example: A shop buys 100 water bottles at ₹200 + 18% GST each and claims ₹3,600 ITC. It gives 20 bottles to customers as Diwali gifts. It must reverse ITC on those 20 bottles: 20 × ₹36 = ₹720.

Other blocked items small businesses miss

• Personal use (17(5)(g)): a phone or AC at the owner’s home, or household groceries. Where an item is used partly for business, claim only the business share (Section 17(1)).
• Purchases from composition dealers (17(5)(e)): they cannot charge GST on their invoices, so there is no ITC. See our composition scheme guide.
• CSR spending (17(5)(fa)): applies to companies that must spend on CSR, from 1 October 2023.
• Tax paid under Section 74 (17(5)(i)): tax paid after a fraud or suppression demand is blocked, but only for periods up to FY 2023-24. Since 1 November 2024, tax paid on detention or confiscation of goods (Sections 129 and 130) is no longer blocked.

How do I report blocked ITC in GSTR-3B?

1. Don’t count blocked credits in your eligible ITC. Even if an invoice shows in GSTR-2B, Section 17(5) still applies. See why GSTR-2B and your books differ.
2. GSTR-3B auto-fills Table 4(A) from GSTR-2B, which can include blocked credits. Reverse the blocked part in Table 4(B)(1), the table for permanent reversals under Section 17(5) and Rules 38, 42 and 43.
3. Add the blocked GST to the cost of the asset or expense in your books.

If you buy services under reverse charge, you still pay the GST, but ITC on it follows the same blocking rules. Read our reverse charge guide.

Common mistakes

• Claiming ITC on the owner’s car because it is “used for business”.
• Claiming GST on office renovation that is capitalised as a building improvement.
• Claiming GST on staff lunches, Diwali gifts or team outings.
• Not reversing ITC on stock written off, stolen or given as free samples.
• Treating every vehicle as blocked: goods vehicles and buses with more than 13 seats qualify for ITC.
• Relying on old case law for building credits without checking the 2025 amendment.

What to do next

Tag blocked categories in your accounting software so they never reach ITC by mistake, and review fixed-asset purchases before claiming. The GST Council is scheduled to meet on 7 October 2026, and reports suggest ITC rules may be discussed. We will update this guide if anything changes.

If you’d like a second look at your ITC claims, our bookkeeping service includes monthly ITC eligibility checks. You can also request a callback for a specific case.