Blocked Credit Under GST: Section 17(5) of CGST Act

Ever wondered why it isn’t possible for you to claim Input Tax Credits (ITC) for specific business expenditures, even when you have paid the goods and services tax? That’s when section 17(5) of CGST, also termed as “Blocked Credit Under GST,” comes into effect.

​Section 17(5) highlights specific conditions where ITC seems to be restricted, irrespective of the nature of your purchase.

​The blog will take you through what is blocked input tax credit under GST, latest updates, clauses, and more. Let’s scroll ahead. 

What is Blocked Credit Under GST? 

Blocked credits are an important provision as they affect the GST cash outflow and the working capital. It identifies purchases for which the goods and services tax is paid, but businesses can’t claim ITC under certain clauses.

​Let’s break every clause in this article and understand blocked credit under GST 17(5) in detail.

Latest Updates: Blocked Credit Under GST 

1. 21st December 2024 

The 55th GST Council Meeting - Amend section 17(5) of CGST, which caters to Blocked ITC.

• Replace “Plant of Machinery” with “Plant and Machinery”.
• This will take effect retrospectively from 1st July, 2017

2. 23rd July 2024 

The Indian government proposed modifications in section 17(5) of blocked credit under GST as below: 

• Limit the blocking of ITC for taxes paid under section 74 i.e. fraudulent statements or non-disclosure of facts, for demands associated with FY2023-24. 
• Eliminate references to Sections 129 (confiscation and release of goods in transit) and Section 130 (detention of goods and apply penalty). 

Blocked Credit Under GST: Clauses 

1. (a), (aa), and (ab)

(a), (aa), and (ab) clauses cater to conveyance and transportation. ITCs can’t be claimed on vehicles bought for passenger transport, which includes: 

• Four Wheeler Cars
• Auto-rickshaws or three-wheelers  
• Motorbikes, mopeds, or cycles
• Tempo travellers, buses with <= 13 seats, including the driving seat.
• Other means of conveyance on roads

Though ITC claims are blocked for the purchase of the above vehicles, you can still claim them under the following conditions: 

• If you own a business of cabs, give buses on lease, and deliver passenger transport service. 
• If you have a driving school 
• You are an automobile retailer, own showrooms, or manufacture accessories. 

Clause (a) of Section 17(5): Blocked Credit Under GST 

Input Tax credit is blocked for taxes paid on the purchase of ships, vessels, as well as aircraft. But, still the buyers can claim ITCs if the purchase is made for the following form of businesses: 

• Resaling purpose
• Passenger transport, rental or lease of aircraft and ships
• Training schools that teach the navigation of these specialized vehicles
• Vessels engaged in the transportation of goods

Clause (aa): Blocked Input Tax Credit Under GST 

Under this section, ITC can’t be claimed on taxes paid for purchasing insurance or expenses involved in repairing the cabs, mini-buses, or tempo travellers. Also, ships, vessels, and aircraft fall under this category.

But still, ITC remains unblocked if your business is into: 

• Exceptions falling under clause (a)
• Manufacturers of ships, vessels, aircraft, cabs, mini-buses, etc.
• Insurance providers that sell general insurance policies for the above transport. 

Clause (ab): Blocked Credit Under GST 17(5) 

Under this section, ITCs can be claimed with respect to services as below: 

• If the vehicles specified  in clause (a) and (aa) are used for the purpose mentioned.
• Used by manufacturers of aircraft, vessels, and ships
• In respect of general insurance services availed for motorcycles, vessels, or aircraft. 

2. Clause (b) 

Clause (b) of section 17(5) caters to food, catering, vehicle lease, club, and travel. ITCs can’t be claimed on the purchase of below: 

• Expenses incurred with off-site catering, food, or beverages.
• Costs include medical services, beauty therapy, plastic surgery, or cosmetic surgery.
• Life Insurance and Health Insurance Premiums
• Club subscription plans or employee travel allowance for vacations
• Paid leave and travel allowance

However, you can still claim Input Tax Credit on food, medical expenses, transportation, rental service, and insurance if: 

• If the same goods/services are resold. 
• If the goods or services are coupled with other products for reselling 
• Employers should offer the above services to its employees to abide by the norms. 

3. Clause (c) & (D) 

ITCs can’t be claimed under this section for the construction of a building and job work expenditure. Constructions done for residential or commercial purposes are restricted. Also, GST paid on construction material is also excluded.  

Also, ITC remains blocked for GST paid on expenditure incurred in renovation and maintenance of the buildings.

However, ITC can be claimed if the business is into the resale of buildings once constructed, or the purchase of construction equipment and machinery. 

4. Clause (e) & (f)

This clause in Blocked Credit under GST caters to composition and Non-resident taxpayers. Section 10 says, composition taxpayers are not liable to claim ITCs, and GST is paid on turnovers for every quarter. Thus, Section 17(5) excludes composition taxpayers from claiming ITCs irrespective of the fact that goods are being sold or not.

NRI taxpayers pay tax in advance, so they can avail ITCs on IGST applied to imports. But, ITCs for domestic trade remain blocked here. 

5. Clause (g) 

This section denotes items bought for personal reasons or not in use for business purposes are ineligible for ITC. If the goods/services are used for both business and personal purposes, then input tax credit can be claimed only for business use. 

6. Clause (h) 

ITC can’t be claimed for misplaced, stolen, damaged, free sample, or gift items. At times, ITC is claimed during purchase, but while filing Form 3B of GST, it gets reversed for the above scenarios. 

7. Clause (i) 

This clause  of Blocked credit under GST fraudulent input tax credit claims. It denotes, ITC can’t be claimed if: 

• Taxes are unpaid or partially paid. 
• Excess refund claimed. 
• Fraudulent ITC claims or suppressed statement submitted. 

Conclusion 

Blocked input tax credit under GST or section 17(5) of CGST is essential to understand for every business in order to ensure accurate ITC claims. Blocked ITC might seem to be a bit restricted, but it aims to integrate transparency and prevent fraudulent use of tax benefits.

The latest amendments for blocked credit under GST announced in the 55th GST council meeting aim to bring clarity for terms and add restrictions on the blocked credits.

Read every clause in the blog thoroughly to stay ahead of ITC claims and avoid penalties/ reversals.

Save the blog to be referred to in the future. 

FAQs on Blocked Credit Under GST 

1. Where can I view blocked credit under GST balance?

Visit the GST portal and scroll to services > Ledgers > Electronic Credit Ledger > Blocked Credit Balance and check the ITC balance available on your ledger, which is blocked by authorities. 

2. Where do I find a list of ineligible or blocked ITCs? 

You can get the list of blocked ITCs by accessing GSTR-2B or the auto-drafted ITC statements to see the purchase list for which ITC remains blocked with respect to clauses in blocked credit under gst 17(5) of CGST. 

3. What is section 17 5 of CGST? 

Section 17(5) of CGST denotes a list of purchases that are ineligible for ITC claims.

4. How do I see why my credit balance is blocked or unblocked by the tax official? 

Visit the GST portal and log in with your credentials. Scroll to Services > Ledgers > Electronic Credit Ledger> Blocked Credit balance to see reasons why your credit balance is blocked.  

5. What if my ITC is blocked by a tax official? 

• SMS about the ITC being blocked will be sent to the taxpayer 
• A debit entry will be added to the electronic credit ledger of the taxable person. 

About the author