GST was introduced with the view of removing cascading effect of taxes that existed under previous indirect laws.
Any manufacturer, trader, retailer, supplier, e-commerce operator or any other person who is registered under the GST Act and has a valid GSTN can claim credit on purchases / inward supplies received by him.
However, there certain ineligible items defined under section 17(5) of the Act on which GST cannot be claimed.
Section 17(5) – The following items are ineligible and thus, no credit can be claimed on such purchases.
1
Motor vehicles and conveyances
Ineligible ITC/ Blocked ITC
Motor vehicles used for transportation of passengers having capacity of 13 or less than 13 persons (including the driver).
Input Tax Credit under GST is also not available on purchase of aircraft and vessels. This includes not only purchase but also leasing, hiring or renting thereof.
Exception i.e. ITC Available and “not ineligible”
When motor vehicle or vessel or aircraft is used for
Example:
(a)Vehicle purchased for personal use – ITC not available / ineligible
(b) Vehicle purchased by driving school to provide training – ITC available as per above exception
(c) Vehicle purchased by car dealer for sale – ITC available as per above exception
2
Services of general insurance, servicing, repairs and maintenance
Ineligible ITC/ Blocked ITC
Where a service of general insurance, servicing, repairs and maintenance is used for vehicles / vessels or aircraft mentioned above.
Exception i.e. ITC Available and “not ineligible”
Example:
(a) General insurance of motor vehicle purchased for personal use – ITC not available / blocked
(b) Repairs and maintenance of vehicle used for driving school – ITC available as per above exception
3
Supply of food, beverages, club memberships, beauty treatment, etc.
Ineligible ITC/ Blocked ITC
Supply of food, beverages, outdoor catering, beauty treatment, health treatment, cosmetic and plastic surgery, rent-a-cab, life insurance and health insurance
Exception i.e. ITC Available and “not ineligible”
Example:
(a) ABC ltd. used outdoor catering services for its annual function – ITC not available / blocked
(b) Beauty products bought by a salon – ITC available as per above exception
4
Membership of a club, health and fitness center
Ineligible ITC/ Blocked ITC
Membership fees paid for a club, health or fitness center
Exception i.e. ITC Available and “not ineligible”
Where it is obligatory for an employer to provide such supplies to its employees under any law for the time being in force.
Example:
(a) Membership of health centre paid by Mr. X, a businessman – ITC not available / blocked
5
Travel
Ineligible ITC/ Blocked ITC
In case where travel benefits like leave travel concession or home travel concession are provided to employees.
Exception i.e. ITC Available and “not ineligible”
(a) Travel is for business purposes
(b) Where it is obligatory for an employer to provide such supplies to its employees under any law for the time being in force.
Example:
(a) XYZ Ltd. allows its employees to book flight tickets for personal under company’s name – ITC not available / blocked
(b) GST on flight tickets for sales personnel travel (business) – ITC available as per above exception
6
Works Contract
Ineligible ITC/ Blocked ITC
ITC on works contract service used for construction of immovable property.
Exception i.e. ITC Available and “not ineligible”
Input service of works contract used for further supply of works contract service
Example:
(a) ABC Contractors constructing a building (immovable property) – ITC not available / blocked.
(b) ABC Contractors hires PQR Contractors for works contract (an input service) – ITC available as per above exception
7
Construction of an immovable property on own account
Ineligible ITC/ Blocked ITC
Goods or services received for construction of immovable property on his own account
Exception i.e. ITC Available and “not ineligible”
(a) Goods or services used in construction of plant and machinery.
(b) Goods or services or both used in furtherance of business.
Example:
(a) XYZ Ltd hires ABC Contractors for construction of a building (immovable property) – ITC not available / blocked.
(b) XYZ ltd. buys a motor for machinery – ITC available as per exception
Note
For the purpose of Point 6 and 7
Construction includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalisation, to the said immovable property
Plant and machinery means apparatus, equipment, and machinery fixed to earth by foundation or structural support that are used for making outward supply of goods or services or both and includes such foundation and structural supports but excludes—
- Land, building or any other civil structures;
- Telecommunication towers; and
- Pipelines laid outside the factory premises
8
Composition Scheme
Ineligible ITC/ Blocked ITC
Goods or services or both on which tax has been paid under section 10 i.e. composition scheme
Exception i.e. ITC Available and “not ineligible”
No exceptions for composition dealer under GST
Example:
Purchases from composition dealer - ITC not available as tax is not applied
9
Non –residents
Ineligible ITC/ Blocked ITC
Goods or services or both received by a non-resident taxable person
Exception i.e. ITC Available and “not ineligible”
Goods imported by him.
Example:
(a) Goods or services purchased within India – ITC not available
(b) Goods imported from outside India – ITC available as per above exception
10
Personal Consumption
Ineligible ITC/ Blocked ITC
Goods or services or both used for personal consumption
Exception i.e. ITC Available and “not ineligible”
No Exceptions
Example:
Goods purchased in business name for personal use
11
Free Samples and destroyed goods
Ineligible ITC/ Blocked ITC
Goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples.
Exception i.e. ITC Available and “not ineligible”
No Exceptions
Example:
XYZ Ltd distributed goods as free samples – ITC not available on such goods
Skim through our blog for claiming Input Tax Credit on Diwali gifts
12
Fraud cases
Ineligible ITC/ Blocked ITC
Any tax paid in accordance with –
Section 74 – Tax not paid or short paid due to fraud, excessive refund
Section 129 - Detention , seizure and release of goods and conveyance in transit
Section 130 - Confiscation of goods or conveyance and levy of penalty
Fraud cases include fraud or wilful misstatements or suppression of facts or confiscation and seizure of goods.
Such cases where tax was not paid with intention to evade tax the ITC thereon has been prohibited in order to penalize such assesses.
Exception i.e. ITC Available and “not ineligible”
No Exceptions
What is ineligible ITC in GSTR-3B?
The Government has restricted availing of GST Input Tax Credit under GST, by releasing a list of Goods & Services on which ITC claiming remains ineligible under Section 17 (5) of the CGST Act 2017.
For one or more reasons these goods & services will not yield any Input Tax Credit to the taxpayers.
GSTR 3B return filing can be understood in detail with our comprehensive blog.
Given below is a verbatim of an official CBIC update on Blocked ITC-
ITC is not available in some cases as mentioned in Section 17(5) of CGST Act, 2017. Some of them are as follows:
Motor vehicles and other conveyances except under specified circumstances.
Goods and/or services provided in relation to:
Skim through the detailed blog of GST on Restaurants services to understand the complete details.
Works contract services when supplied for construction of immovable property, other than plant & machinery, except where it is an input service for further supply of works contract;
Goods or services received by a taxable person for construction of immovable property on his own account, other than plant & machinery, even when used in course or furtherance of business;
Goods and/or services on which tax has been paid under GST Composition Scheme;
Goods and/or services used for private or personal consumption, to the extent they are so consumed;
Goods lost, stolen, destroyed, written off, gifted, or free samples;
Any tax paid due to short payment on account of fraud, suppression, incorrect declaration, seizure, detention.
Any tax paid due to short payment on account of fraud, suppression, incorrect declaration, seizure, detention.
Businesses must note that, CBIC has re-iterated that Form GSTR 2B should be considered as the final and authoritative source to find your eligible Input Tax Credit for any month.
Special circumstances under which ITC is available:
A person who has applied for GST registration within 30 days of becoming liable for registration is entitled to avail Input Tax Credit in respect of goods held in stock (inputs as such and inputs contained in semi-finished or finished goods)
on the day immediately preceding the date from which he becomes liable to pay tax
NOTE: GST impacts on Capital goods can be tricky to understand. Read our detailed blog on Input Tax Credit on Capital Goods under GST.
A person who has taken voluntary registration under Section 23(3) of the CGST Act, 2017 is entitled to ITC of input tax in respect of goods held in stock (inputs as such and inputs contained in semi-finished or finished goods) on the day, immediately preceding the date of registration.
A person switching over to normal scheme from composition scheme under section 10 is entitled to ITC in respect of goods held in stock (inputs as such and inputs contained in semi-finished or finished goods)
and capital goods on the day immediately preceding the date from which he becomes liable to pay tax as normal taxpayer.
Where an exempt supply of goods or services or both become taxable, the person making such supplies shall be entitled to take ITC in respect of goods held in stock (inputs as such and inputs contained in semi-finished or finished goods) relatable to exempt supplies.
He shall also be entitled to take credit on capital goods used exclusively for such exempt supply, subject to reductions for the earlier usage as prescribed in the rules.
ITC, in all the above cases, is to be availed within 1 year from the date of issue of invoice by the supplier
In case of change of constitution of a registered person on account of sale, merger, demerger etc., the unutilized ITC shall be allowed to be transferred to the transferee.
A person switching over from Composition Scheme under GST under section 10 to normal scheme or where a taxable supply become exempt, the ITC availed in respect of goods held in stock (inputs as such and inputs contained in semi-finished or finished goods) as well as capital goods will have to be paid.
In case of supply of capital goods or plant and machinery, on which ITC is taken, an amount equivalent to ITC availed minus the reduction as prescribed in rules (5% for every quarter or part thereof) shall have to be paid. In case the tax on transaction value of the supply is more, the same would have to be paid
In case of supply of capital goods or plant and machinery, on which ITC is taken, an amount equivalent to ITC availed minus the reduction as prescribed in rules (5% for every quarter or part thereof) shall have to be paid. In case the tax on transaction value of the supply is more, the same would have to be paid
Ineligible ITC under GST Section-17(5)
You cannot claim & utilize the credits on these specified cases & services, an example would be the purchase of goods & services for personal use.
Taxpayers need to avoid claiming blocked credits to avoid the friction of legal disputes & discrepancies, as claiming blocked credits may attract penalties, fines, interests & in major cases even lawsuits.
Claiming blocked ITC can initially lead taxpayers to reversing the ITC so claimed along with interest in the preceding tax period; there are also chances of legal notices & scrutiny in extreme cases.
A thorough knowledge & brainstorm of this crucial aspect of ITC is necessary while making an ITC claim, refer to the official PDF given below to get the most authentic information on blocked ITC or consult with a CA.
List of goods and services not eligible for
input tax credit
Here is a list of goods & services that are deemed as blocked Credit under Section 17 (5) of the CGST Act 2017-
Sr.No | Goods & Services |
|---|---|
1 | ITC on purchase of Motor vehicles and conveyances (for personal use, a motor vehicle with seating capacity up to 13 persons, purchase of aircraft & vessels. |
2 | General insurance, servicing, repairs, and maintenance of vehicles & vessels |
3 | Vessels & Aircraft, however, there are a few exceptions where ITC is allowed for the same. |
4 | Supply of food, beverages, club memberships, beauty treatment, surgery, etc for personal use or office parties |
5 | Membership of a club, Gym, Beauty club, health, and fitness center |
6 | Life & Health insurance |
7 | Travel for personal or business purposes, vacations, holidays, etc. where LTA is provided to the employees (unless obligated) |
8 | Leasing, Renting, Hiring Vehicles for other than specified purposes. |
9 | Working Contract (for construction of properties) |
10 | Construction of immovable property for personal use |
11 | Purchase from Composition Scheme |
12 | Good & Services received by a Non-resident |
13 | Goods & Services for Personal Consumption |
14 | Free Samples, gifts, lost stolen and destroyed goods |
15 | Fraudulent availment of ITC under section 74 of the CGST Act 2017. |
16 | Goods & Services purchased for exempted supplies. |
17 | No ITC on account of detention, seizure, and release of goods and conveyances in transit. (Under Section 129) |
18 | No ITC allowed on payment of late fees, penalties, interests, etc. |
19 | No ITC on tax paid on account of confiscation of goods or conveyances and levy of penalty (Under Section -130) |
Concluding Note:
Claiming accurate Input Tax Credit is mandatory & necessity for all Tax payers. If you are claiming ITC under blocked categories of credit, you may face legal actions from GSTN.
At GSTHero we help Businesses (Tax Payers) to avail 100% ITC accurately. Our Reconciliation software accurately matches your GSTR 2A data with your Purchases within few clicks.
FAQs on Blocked Credit
Section 17(5) of the CGST Act 2017 specifies the situations wherein Input Tax Credit cannot be availed for goods and services procured by a business. These are often referred to as "blocked credits."
Major items covered under the blocked credit scheme include motor vehicles, food and beverages, works contract services, etc, unless they are used for making an outward taxable supply.
Yes, the provisions of blocked credit u/s 17(5) are applicable to all businesses registered under GST, regardless of the nature or size of the business.
Claim upto 100% Input Tax Credit
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