Blocked input tax credit: what businesses cannot claim under GST
- November 13, 2026
- Posted by: kirit.topgstexperts
- Category: GST
Even when a purchase is used in your business and the supplier has charged GST, you cannot claim input tax credit (ITC) on certain items. Section 17(5) of the Central Goods and Services Tax Act, 2017 (CGST Act) lists these “blocked credits”: mainly passenger cars, food and beverages, club and health memberships, employee holiday travel, construction of buildings, personal-use items, gifts, free samples and lost goods. The GST paid on them becomes a cost to your business.
What section 17(5) does
Normally, section 16 of the CGST Act allows a registered person to take credit of GST paid on goods and services used in the course or furtherance of business. Section 17(5) overrides that general rule. It opens with a non-obstante clause, so even if every condition of section 16 is met (valid invoice, goods or services received, supplier has filed returns and paid tax), the credit is still not available for the items in the list.
The list is specific. If an expense does not fall within one of its clauses, section 17(5) does not block it, though other conditions in sections 16 and 17 may still restrict the credit.
The blocked list at a glance
| Clause of section 17(5) | What is blocked | When credit is still allowed |
|---|---|---|
| (a) | Motor vehicles for carrying 13 persons or fewer (including the driver) | Further supply of such vehicles, transport of passengers, or training others to drive them |
| (aa) | Vessels and aircraft | Further supply, passenger transport, flying or navigation training, or transport of goods |
| (ab) | Insurance, servicing, repair and maintenance of the above vehicles, vessels and aircraft | Where the vehicle itself qualifies for credit, or when received by a manufacturer of such vehicles or an insurer that insures them |
| (b)(i) | Food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, renting or hiring of the above vehicles, life and health insurance | Where you supply the same category of service onward, or it is part of a taxable composite or mixed supply |
| (b)(ii) | Membership of a club, health or fitness centre | Where the law obliges the employer to provide it |
| (b)(iii) | Travel benefits to employees on leave or home travel concession | Where the law obliges the employer to provide it |
| (c) | Works contract services for construction of immovable property | Where you are a works contractor supplying further works contracts, or the property is plant and machinery |
| (d) | Goods or services used to construct immovable property on your own account | Where the property is plant and machinery |
| (e) | Goods or services on which tax was paid under the composition scheme (section 10) | None |
| (f) | Goods or services received by a non-resident taxable person | Goods the non-resident imports |
| (g) | Goods or services used for personal consumption | None |
| (h) | Goods lost, stolen, destroyed, written off, given as gifts or free samples | None |
| (i) | Tax paid under section 74 (fraud or suppression cases) for periods up to FY 2023-24, as amended with effect from 01.11.2024 | None |
Credit on vehicle insurance and repairs under clause (ab) is blocked only to the same extent that the vehicle itself is blocked. If your car qualifies for credit, so does its servicing.
Motor vehicles: the most common blocked credit
The test under clause (a) is seating capacity, not who uses the car. A car, SUV or MPV that seats 13 or fewer people, driver included, is blocked unless the business itself uses it for one of three purposes: selling such vehicles, carrying passengers for a fare, or running a driving school.
So a trading company that buys a car for its sales manager cannot claim the GST, even if the car is used only for business. A cab operator that buys the same car to carry paying passengers can.
Vehicles that carry goods (trucks, tempos, delivery vans built for cargo) and buses that seat more than 13 are outside clause (a). Credit on them follows the normal rules.
For car dealers, CBIC Circular No. 231/25/2024-GST dated 10.09.2024 clarified that demo vehicles used for test drives count as use for further supply, so credit is available. It is not available if the dealer uses the demo car to move staff, or if the dealer is only an agent and the manufacturer invoices the customer directly.
Food, clubs, health and employee travel
Canteen food, office lunches, Diwali sweets for staff, gym memberships, health insurance for employees and leave travel packages are all covered by clause (b).
Two exceptions matter in practice:
- Same line of business. A restaurant can claim credit on food it buys to serve customers, and a tour operator can claim credit on hotel and travel services it resells.
- Obligation under law. Where a law in force requires the employer to provide the item, credit is allowed. CBIC Circular No. 172/04/2022-GST dated 06.07.2022 clarified that this relief applies to the whole of clause (b), not just to employee travel. Examples include a canteen that a factory must run under labour law. A benefit given only because the employment contract or company policy promises it does not qualify.
Construction of buildings and other immovable property
Clauses (c) and (d) block credit on works contracts and on cement, steel, contractor services and other inputs used to build immovable property on your own account. This applies even if the building is an office, a factory shed or a mall you will rent out. Repairs and renovations are covered too, to the extent you capitalise them in your books.
The exception is plant and machinery: equipment fixed to the earth by a foundation or structural support and used to make outward supplies, including that foundation. Land, buildings, other civil structures, telecom towers and pipelines outside the factory are excluded from that definition.
In Safari Retreats (decided by the Supreme Court on 03.10.2024), the Court held that a building could fall within the words “plant or machinery” in clause (d), depending on its function. Parliament responded through the Finance Act, 2025, which replaced “plant or machinery” with “plant and machinery” in clause (d) retrospectively from 01.07.2017. The amendment was brought into force on 01.10.2025 by Notification No. 16/2025-Central Tax dated 17.09.2025. For practical purposes, credit on constructing a building for letting out is blocked, though challenges to the retrospective change are pending.
Personal use, gifts, free samples and lost goods
Clause (g) blocks credit on anything used for personal consumption, such as a proprietor’s home furniture billed to the firm. Where an input is used partly for business and partly for personal purposes, credit is allowed only on the business portion, and the rest is reversed under rules 42 and 43 of the CGST Rules.
Clause (h) blocks credit on goods that are lost, stolen, destroyed or written off, or given away as gifts or free samples. If you already took credit when buying them, you must reverse it. Gifts to an employee of up to ₹ 50,000 in a financial year are not treated as a supply under Schedule I, but credit on those gifts remains blocked.
Worked example: one month of purchases
Raj Traders, a GST-registered wholesaler of electrical goods in Thane, records these purchases in a month. The GST figures are as shown on the supplier invoices.
| Purchase | GST on invoice (₹) | Blocked? | ITC allowed (₹) |
|---|---|---|---|
| Stock of switches and cables for resale | 1,80,000 | No | 1,80,000 |
| Sedan for the director (5 seats) | 2,25,000 | Yes, clause (a) | 0 |
| Servicing of that sedan | 4,500 | Yes, clause (ab) | 0 |
| Delivery tempo (goods carriage) | 1,10,000 | No | 1,10,000 |
| Staff lunch from a caterer | 6,000 | Yes, clause (b) | 0 |
| Gym membership for two managers | 3,600 | Yes, clause (b) | 0 |
| Civil work on a new godown | 90,000 | Yes, clause (d) | 0 |
| Forklift for moving stock in the godown | 27,000 | No (capital goods) | 27,000 |
| Diwali gift hampers for customers | 12,000 | Yes, clause (h) | 0 |
| Total | 6,58,100 | 3,17,000 |
Of ₹ 6,58,100 GST paid, ₹ 3,41,100 is blocked and becomes part of the cost of the related expense or asset. If Raj Traders had claimed the full amount, it would have to reverse ₹ 3,41,100 with interest, and could face a penalty.
Common mistakes
- Claiming credit on a car because it is “used only for business”. Business use does not unlock clause (a). Only the three listed uses do.
- Treating the auto-populated credit in GSTR-2B as automatically claimable. GSTR-2B shows what suppliers reported, not what is eligible. Filter out blocked items before filing GSTR-3B.
- Relying on an HR policy for the employer-obligation exception. The obligation must come from a law, not from an appointment letter or company policy.
- Missing the reversal on free samples and write-offs. Credit taken on purchase must be reversed when stock is distributed free, destroyed or written off.
- Claiming credit on capitalised repairs to a building. Renovation that is capitalised is treated as construction and is blocked.
- Claiming both ITC and depreciation on the same GST. Under section 16(3), credit is not allowed on the tax component if depreciation has been claimed on it under the Income-tax Act. Blocked GST, on the other hand, forms part of the asset’s cost.
Practical checklist before filing GSTR-3B
- Tag every purchase ledger (vehicles, staff welfare, repairs, building, gifts) so blocked items are easy to separate.
- Check seating capacity on the registration certificate of any vehicle bought.
- Keep a copy of the law that makes any employee benefit mandatory, if you claim credit on it.
- Record gifts, samples and stock write-offs monthly and reverse credit on them.
- Report blocked credit in the ineligible ITC rows of GSTR-3B rather than leaving it out silently.
- Use our GST calculator to check the tax on invoices before booking them.
Frequently asked questions
Can I claim ITC on a car bought by my company?
Only if the company deals in such cars, runs a taxi or passenger transport business, or runs a driving school. Otherwise the GST is blocked under section 17(5)(a).
Is ITC available on a truck or goods vehicle?
Yes. Clause (a) covers only vehicles that carry 13 persons or fewer. Goods carriages follow the normal ITC rules.
Can a hotel or restaurant claim ITC on food purchases?
Yes, when the food is used to supply food and beverage services that are taxable. Note that some restaurant services are taxed at a rate that does not allow ITC; check the rate notification that applies to you.
Is ITC on building a factory blocked?
Credit on the building is blocked. Credit on machinery and its foundation, which fall within plant and machinery, is allowed.
What happens if I claimed blocked credit by mistake?
Reverse it in GSTR-3B with interest at the earliest. If the department raises it first, a show cause notice can follow with interest and penalty.
For help reviewing your input tax credit, you can write to advisory@topgstexperts.com. You can also read more about our GST services.
This article reflects the law as on 13.11.2026 and is general information, not professional advice. Rates, limits and due dates change; verify them with the official source before acting.