If there's one section of GST that every business owner and accountant dislikes the most, it’s Section 17(5) — the famous Blocked Credit section. It’s basically a list where the government says:
“Even if you paid GST on this, and even if it is for business, you still cannot take ITC.”
And obviously, that creates a lot of confusion. Many people claim ITC thinking it’s allowed, and later they receive notices asking for reversal. So in this blog, I’ll break down every part of Section 17(5) in a simple, human way — just like we’re talking casually.
This section tells you about situations where ITC is permanently disallowed. Not temporarily like Rule 37 or Rule 37A — but permanently. Once it becomes blocked, it’s gone.
Let’s go through each category one by one, in the easiest possible language.
1. Motor Vehicles and Conveyances – Most Common Blocked ITC
This is the most well-known blocked credit.
Under Section 17(5)(a), ITC on motor vehicles for transportation of persons is blocked unless it is used for:
- transporting passengers
- training (like driving schools)
- supplying such vehicles (dealers, leasing companies)
Meaning in simple words:
If you buy a car for office use, marketing, meetings, directors, anything…
👉 ITC is NOT allowed.
✔ ITC Allowed if:
- You run a taxi service
- You run a driving training center
- You are a car dealer
- You lease/rent motor vehicles
❌ ITC NOT Allowed if:
- Company buys a car for CEO
- Car is used for sales staff
- Bikes for employees
- Office-use vehicles
GST authority also includes conveyances, meaning even trucks/vehicles for goods need to match the allowed conditions.
2. Food, Beverages, Outdoor Catering – Unless for Making Outward Supply
GST blocks ITC on:
- food
- beverages
- restaurant expenses
- catering
- outdoor catering
- refreshments
Unless:
👉 Your business is supplying the same category goods/services.
✔ ITC allowed if:
- You run a catering business and purchase food ingredients → allowed.
- You run a restaurant → allowed.
❌ ITC not allowed if:
- Company arranges meals for employees.
- Snacks bought for office meetings.
- Food served at events or seminars.
Even if it’s for business promotion, still not allowed.
3. Beauty Treatment, Health Services, Cosmetic Procedures
Even if you pay GST on these, ITC is blocked unless you are in that business.
❌ No ITC for:
- Beauty services
- Hair treatment
- Skin care
- Weight-loss services
- Spa services
✔ Allowed if:
You are a salon or beauty service provider and you purchase goods/consumables for providing such service.
4. Club Membership, Fitness Centers, Health Clubs
This is completely blocked.
If a company pays for:
- Club membership fees
- Sports club
- Swimming club
- Gym membership
- Yoga classes
👉 ITC is not allowed.
Even if it is purchased for employee welfare or director meetings.
5. Rent-a-Cab, Life Insurance & Health Insurance – Mostly Blocked
The law blocks ITC on:
- rent-a-cab services
- life insurance
- health insurance
But with exceptions.
✔ ITC Allowed if:
- It is obligatory under any law. Example: For dangerous factory environments, companies must provide health insurance by law → ITC allowed.
- You are in the business of providing these services. Example: insurance companies, corporate agents, rent-a-cab suppliers.
❌ ITC Not Allowed if:
- Company provides cab facility to employees
- Employer pays health insurance as a benefit
- Company reimburses insurance premiums
Even if it is for business morale or safety.
6. Travel Benefits to Employees (Vacation, Leave Travel Concession)
If a company pays for employee:
- vacation trip
- holiday package
- LTC (Leave Travel Concession)
- airfare or hotel
👉 ITC is blocked.
This is purely a welfare or personal benefit.
7. Works Contract Services for Construction of Immovable Property
This is one of the trickiest blocked credit categories.
ITC is not allowed on:
- works contract services
- construction services
when used for construction of immovable property, except:
👉 When you are a works contractor and you supply works contract services to someone else.
❌ No ITC for:
If you construct:
- office building
- warehouse
- shop
- showroom
- godown
- factory shed
- office interior (if capitalized as immovable property)
Even renovation or major repairs are often blocked if they are capitalized.
8. Construction of Immovable Property by a Taxable Person – Big Block
Even if you directly purchase:
- cement
- steel
- tiles
- sanitary items
- electrical fittings
- furniture (fixed to building)
- civil construction material
AND use them to build your building, factory, or office…
👉 ITC is blocked.
Important Note
If you capitalize the expenditure as immovable property, ITC gets blocked.
If the item remains movable (not attached permanently), ITC can be allowed.
9. Goods or Services for Personal Consumption
This one is simple.
If a business pays for:
- personal gifts
- personal purchases of employees
- personal use of director
- home appliances
- home renovation
- personal electronics
- personal travel
👉 ITC is blocked.
Even if payment is done from business account.
10. Goods Lost, Stolen, Destroyed, Written Off – Fully Blocked
GST authority highlights this clearly.
ITC is blocked on:
- goods lost
- goods stolen
- goods destroyed
- goods given as free samples
- goods distributed as gifts
- goods written off in books
One of the biggest mistakes businesses make is claiming ITC on destroyed items (like during fire, flood, or expiry), but GST doesn’t allow it.
Example:
Company buys goods worth ₹5,00,000 and claims ITC. Goods get destroyed in a fire. Company must reverse the entire ITC.
11. Composition Tax Paid – Always Blocked ITC
Credit of tax paid under composition scheme is not allowed to anyone.
- If you buy from a composition dealer
- If composition dealer pays tax on supplies
👉 No ITC is allowed.
12. Tax Paid Due to Fraud, Willful Misstatement, Suppression (Section 74 Cases)
If you pay GST as a result of a penalty-related situation, like:
- fraud
- misreporting
- suppression
- fake invoices
- bogus ITC claim
Any tax, interest, or penalty you pay under Section 74 → NO ITC allowed.
This is a strict clause.
13. ITC on Goods Distributed as Gifts or Free Samples
This is very, very common.
Companies often give:
- free samples
- Diwali gifts
- promotional items
- bonus gifts to dealers
- free distribution to customers
Under Section 17(5)(h):
👉 ITC must be reversed on goods given as gifts or free samples.
Even if it is for brand promotion.
Example:
You buy 1,000 units of shampoo and distribute 200 units as free samples. You must reverse ITC proportionately for 200 units.
14. Most Misunderstood Area – ITC on Office Interiors
Office interior expenses are confusing because some parts are movable and some are immovable.
✔ ITC Allowed if:
Item is movable:
- movable furniture
- office chairs
- tables
- computers
- ACs (not permanently fixed)
- electrical equipment
❌ ITC Blocked if:
Item is immovably attached, like:
- false ceiling
- fixed flooring
- permanent wooden partition
- built-in cupboards
- plumbing
- electrical wiring hidden inside walls
If you capitalize it as a building improvement, ITC is blocked.
15. ITC on CSR Expenses (Controversial Area)
GST authority may not go deep into CSR, but the general understanding is:
- If CSR is mandated → ITC may be allowed
- If CSR is voluntary → ITC is generally blocked
This depends on case law.
But for the purpose of Section 17(5), most officers treat CSR as non-business → blocked.
16. Quick Visual Summary
| Category | ITC Allowed? | Notes |
| Motor Vehicles | ❌ | Except passenger transport, training, supply |
| Food/Catering | ❌ | Except outward supply |
| Beauty/Health | ❌ | Except outward supply |
| Club/Gym | ❌ | Always blocked |
| Rent-a-cab/Insurance | ❌ | Allowed only if obligatory by law |
| Works Contract | ❌ | Except if you provide works contract services |
| Construction | ❌ | Immovable property construction blocked |
| Personal Use | ❌ | Always blocked |
| Goods Lost/Stolen | ❌ | Must reverse |
| Free Gifts/Samples | ❌ | Must reverse |
| Composition Tax | ❌ | Always blocked |
| Fraud Cases | ❌ | No ITC |
This covers the entire list.
17. Why Blocked Credits Exist?
The GST logic is simple:
- Personal consumption should not get ITC.
- Items leading to double benefit (like construction) must not get ITC.
- Some items create practical misuse (like cars, food, gifts).
- ITC must relate to taxable outputs only.
That’s why Section 17(5) exists.
18. Most Common Mistakes Businesses Make
- Claiming ITC on office car
- Claiming ITC on food and refreshments
- ITC on corporate gifts
- ITC on renovation treated as capital work
- ITC on stolen/damaged goods
- ITC on expenses of director’s personal use
- ITC on free samples to customers
These lead to notices.
19. Final Summary
Blocked credits are simply:
“Expenses where government says — even if used for business, VAT/GST always used to block this, and GST will continue blocking.”
If you remember the logic behind each category, Section 17(5) becomes very easy.
