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blocked ITC under GST

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ineligible inout tax credit

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.

input tax credit

1

Motor vehicles and conveyances

e way bill generation

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 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

  • Further supply of such vehicles, vessels or aircraft
  • Transportation of passengers
  • Imparting training on driving such vehicles (including training to operate vessels / aircraft)

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

ITC under GST

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”

  • A taxable person engaged in manufacturing of such motor vehicles, vessels or aircraft
  • A taxable person involved in the supply of general insurance services
  • Other as mentioned above in Point 1(B)

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

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”

  • When such services are used for furtherance of business and not end use or as an element of taxable composite or mixed supply
  • 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) 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

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

blocked ITC

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

blocked ITC

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

blocked ITC

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

GST Return Filing

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

input tax credit

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

input tax credit

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

12

Fraud cases

Input Tax Credit

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?

ineligible ITC in GSTR-3B

The Government has restricted the availment of ITC 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.

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:

  • Food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, except under specified circumstances;
  • Membership of a club, health and fitness center;
  • Rent-a-cab, life insurance, health insurance except where it is obligatory for an employer under any law;
  • Travel benefits extended to employees on vacation such as leave or home travel concession;

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 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, mis-declaration, seizure, detention.

Any tax paid due to short payment on account of fraud, suppression, mis-declaration, seizure, detention.

Special circumstances under which ITC is available:

input tax credit

A person who has applied for registration within 30 days of becoming liable for registration 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 from which he becomes liable to pay tax

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 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)

ineligible ITC
As per section 17(5) of CGST Act 2017, there is an entire class of cases, goods & services for which the ITC remains blocked, such Input Tax Credit is called ineligible or blocked credits under GST.

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

list of ineligible ITC

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.

If you need GSTHero DEMO, feel free to contact us at info@gsthero.com


About the author

CA Sugandh Jain Parmar is a practicing Chartered Accountant with an experience of over 4 years. Having associated with one of the Big 4 audit firms in India for 2 years, she has knowledge on internal audit and internal financial controls. Currently, her domain specialization includes providing GST consultancy and advisory services. Her articles focus on balancing information and in-depth information on GST related topics.

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