Blocked Credits Under Section 17(5) of GST

Section 16 of the CGST Act sets out when you can claim input tax credit. Section 17(5) sets out when you cannot, however valid the invoice and however clearly the purchase served your business. It opens with "notwithstanding anything contained in sub-section (1) of section 16", which means these exclusions override the general entitlement. This post walks through it clause by clause: what each one blocks, the exceptions written into it, and the construction dispute that went to the Supreme Court in 2024.

How Section 17(5) works

Credit under GST passes two tests. The first is eligibility under Section 16: a tax invoice, receipt of the goods or services, tax actually paid by the supplier, and your own return filed, all inside the time limit in Section 16(4). The input tax credit rules explainer covers those conditions, and the Section 16(4) time limit post covers the deadline.

The second test is Section 17(5). If a purchase falls in one of its clauses, the credit is gone regardless of the first test. Blocked credit is not deferred or suspended the way credit is under the Rule 37A reversal for unfiled supplier returns. It is simply not available.

Most clauses carry their own exceptions, and those exceptions are where the money is. Read each clause together with its exception before deciding a purchase is blocked.

Motor vehicles, vessels and aircraft: clauses (a), (aa) and (ab)

Clause (a) blocks credit on motor vehicles for transporting persons with an approved seating capacity of not more than 13, including the driver. The company car, the director's SUV and the sales team's hatchbacks all fall here. Credit is still available when the vehicle is used for:

• further supply of such vehicles, as with a car dealer;
• transportation of passengers, as with a taxi or cab operator;
• imparting training on driving such vehicles, as with a driving school.

Two things sit outside clause (a) entirely. Vehicles that carry goods are not covered, so a delivery van or truck is not blocked by this clause. Passenger vehicles with seating above 13, such as a staff bus, are not covered either.

Clause (aa) applies the same logic to vessels and aircraft. Credit is available when they are used for further supply, for transporting passengers, for training on navigating or flying them, or for transporting goods.

Clause (ab) follows the vehicle. General insurance, servicing, repair and maintenance of a vehicle, vessel or aircraft blocked under (a) or (aa) are blocked too. If the vehicle itself qualifies for credit because of one of the permitted uses, so do these services. Credit is also allowed to a manufacturer of such vehicles and to a general insurer insuring them.

Food, perks and employee benefits: clause (b)

Clause (b) is the one most finance teams trip on, because it has three sub-clauses and two different exceptions that do not apply evenly.

Sub-clause (i) blocks food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, leasing, renting or hiring of the vehicles, vessels and aircraft covered by (a) and (aa) (except when used for their permitted purposes), and life insurance and health insurance. The exception inside (i) is the same-category rule: credit is available where the inward supply is used to make an outward taxable supply of the same category, or as an element of a taxable composite or mixed supply. A caterer who subcontracts catering, or a tour operator who buys hotel meals as part of a taxable package, can claim.

Sub-clause (ii) blocks membership of a club and of a health and fitness centre. Sub-clause (iii) blocks travel benefits extended to employees on vacation, such as leave or home travel concession.

A proviso then covers the whole of clause (b): credit is available where it is obligatory for an employer to provide the goods or services to its employees under any law for the time being in force. A statutory canteen that a factory must run under the Factories Act is the standard example. Group health cover you choose to buy as a perk is not obligatory. Cover that a specific statute requires you to provide may be.

Note what clause (b) does not cover. Hotel stays and flights for business travel are not in the list, so credit on them is decided by the ordinary Section 16 conditions, not blocked here. Travel for an employee's holiday is blocked.

Construction and works contracts: clauses (c) and (d)

Clause (c) blocks credit on works contract services supplied for the construction of an immovable property (other than plant and machinery), except where the works contract service is an input service for a further supply of works contract service. A main contractor who engages a sub-contractor can claim. The owner who pays the main contractor to build its own premises cannot. The works contract classification post covers how these services are coded.

Clause (d) blocks credit on goods or services received by a taxable person for the construction of an immovable property on his own account, including when the property is used in the course or furtherance of business. Cement, steel, architect fees and contractor bills for your own factory shed or office all sit here.

Two definitions do most of the work:

• Construction includes re-construction, renovation, additions, alterations and repairs, to the extent they are capitalised. Repairs you expense through the profit and loss account are not construction for this purpose.
• Plant and machinery means apparatus, equipment and machinery fixed to earth by a foundation or structural support and used for making outward supplies, including that foundation and support. It excludes land, buildings and other civil structures, telecommunication towers, and pipelines laid outside factory premises.

So credit on a machine bolted to a foundation, and on the foundation itself, survives. Credit on the building housing it does not. How to treat credit on machinery once it is available is covered in the ITC on capital goods guide.

Safari Retreats and the 2025 amendment

Clause (c) said "plant and machinery", but clause (d) as originally enacted said "plant or machinery". In Chief Commissioner of CGST v. Safari Retreats, decided in October 2024, the Supreme Court upheld the validity of both clauses but held that the difference in wording was deliberate. "Plant or machinery" in clause (d) was not governed by the narrow definition of "plant and machinery", and "plant" took its ordinary meaning.

The court applied a functionality test: if a building is essential to carrying on the taxable supply, such as a mall or warehouse built to be let out, it could qualify as a "plant", and credit on its construction would not be blocked. Whether a particular building passed the test was left as a question of fact.

Parliament responded in the Finance Act, 2025. As we understand it, the amendment substitutes "plant or machinery" in clause (d) with "plant and machinery", retrospectively from 1 July 2017, and aligns the Explanation so that the narrow definition governs both clauses, which removes the functionality route the judgment had opened.

This matters most for businesses that build property to rent out. If you are on the other side of that arrangement, the GST on rent guide covers how the rent itself is taxed.

The remaining clauses: (e) to (i)

Clause (e): composition. Credit is blocked on goods or services on which tax has been paid under Section 10, the composition scheme. A composition supplier issues a bill of supply with no GST charged, so its customers have nothing to claim. Separately, Section 10 bars a composition taxpayer from taking credit on its own purchases. The composition scheme guide covers who can opt in.

Clause (f): non-resident taxable persons. A non-resident taxable person cannot take credit on goods or services received, except on goods it imports itself.

Clause (fa): CSR. Inserted by the Finance Act 2023 and effective from 1 October 2023, it blocks credit on goods and services used or intended to be used for corporate social responsibility obligations under Section 135 of the Companies Act, 2013.

Clause (g): personal consumption. Anything used for personal consumption is blocked. For a mixed-use purchase, the non-business share is reversed under the apportionment rules rather than the whole credit being denied.

Clause (h): goods lost, stolen, destroyed, written off, or given as gifts or free samples. If you claimed credit when the goods came in and they later leave this way, reverse that credit. Destruction of finished goods through fire or flood falls here too, which is why insurers and auditors both ask about the credit reversal after a loss.

Clause (i): tax paid on fraud demands, detention and confiscation. As enacted, it blocked credit on tax paid under Section 74 (demands involving fraud, wilful misstatement or suppression), Section 129 (detention and release of goods in transit) and Section 130 (confiscation). The clause was amended in 2024 alongside the introduction of Section 74A for newer periods, so check its current text before applying it to a specific period. The distinction between Section 73 and 74 demands is covered in the show cause notice guide.

Every clause at a glance

Clause	What is blocked	Exception
(a)	Passenger motor vehicles seating 13 or fewer, including the driver	Further supply of vehicles, passenger transport, driving training
(aa)	Vessels and aircraft	Further supply, passenger transport, navigation or flying training, goods transport
(ab)	General insurance, servicing, repair and maintenance of vehicles, vessels and aircraft blocked above	Where the vehicle qualifies for credit; manufacturers of such vehicles; general insurers insuring them
(b)(i)	Food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, renting of blocked vehicles, life and health insurance	Outward taxable supply of the same category or as part of a taxable composite or mixed supply; obligatory for employer under law
(b)(ii)	Club membership, health and fitness centre membership	Obligatory for employer under law
(b)(iii)	Travel benefits to employees on vacation (leave or home travel concession)	Obligatory for employer under law
(c)	Works contract services for construction of immovable property	Plant and machinery; input service for a further works contract supply
(d)	Goods and services for construction of immovable property on own account	Plant and machinery (wording amended retrospectively by the Finance Act, 2025)
(e)	Goods or services on which tax was paid under the composition scheme	None
(f)	Inward supplies received by a non-resident taxable person	Goods imported by the non-resident
(fa)	Goods and services used for CSR obligations (from 1 October 2023)	None
(g)	Goods and services for personal consumption	None; business share of mixed use is apportioned
(h)	Goods lost, stolen, destroyed, written off, or disposed of as gifts or free samples	None
(i)	Tax paid on fraud demands under Section 74 and, as enacted, under Sections 129 and 130	None; check the clause's current wording after the 2024 amendment

In practice, blocked credit has to be caught in your own books. GSTR-2B shows what your suppliers reported, not how you used the purchase, so a car or a client dinner arrives there looking like any other eligible invoice. Tag blocked categories at the ledger level and reverse them through Table 4(B) of GSTR-3B. The GSTR-2B reconciliation guide shows where that tagging fits in the monthly match.

Blocked credit is the loss you choose. The one you do not choose is credit that never reaches GSTR-2B because a supplier stopped filing. Checking a supplier's registration status and return filing history before you pay closes that gap; you can try it on five GSTINs a day with the free GST number search.

Frequently asked questions

What is a blocked credit under GST?

A blocked credit is input tax credit that Section 17(5) of the CGST Act denies even though the purchase was made in the course of business and every condition in Section 16 is met. The tax you paid on such a purchase becomes a cost. It cannot be set off against your output liability.

Can I claim ITC on a car bought for my business?

Not if it is a passenger vehicle with an approved seating capacity of 13 or fewer, including the driver, and you use it for ordinary business travel. The credit is available only if you deal in such vehicles, use them to transport passengers as a service, or use them to train drivers. Goods carriages and passenger vehicles seating more than 13 fall outside the block.

Is ITC on food and canteen expenses always blocked?

It is blocked by default under Section 17(5)(b). Two exceptions apply: where the food is used to make an outward taxable supply of the same category (a caterer buying catering services, for example), and where a law in force obliges the employer to provide it to employees. Voluntary staff meals and client lunches stay blocked.

Can I claim ITC on the construction of my office or factory building?

Generally no. Clauses (c) and (d) block credit on works contracts and on goods and services used to construct immovable property on your own account, even when the building is used for business. The carve-out is for plant and machinery, which excludes land, buildings and other civil structures, and its scope has been litigated and amended, so take advice on specific facts.

Is ITC blocked on free samples and gifts?

Yes. Clause (h) blocks credit on goods disposed of by way of gift or free samples, and on goods lost, stolen, destroyed or written off. If you already claimed credit on stock that later goes out as samples, you reverse it.

Where do I reverse blocked ITC in GSTR-3B?

Credit that is blocked under Section 17(5) goes in the reversal rows of Table 4(B) of GSTR-3B, the row that refers to Rules 38, 42 and 43 and Section 17(5). GSTR-2B does not flag most blocked credits for you, because the portal cannot see how you use a purchase. You have to identify them from your own purchase register.

Is ITC on CSR spending blocked?

Yes. Clause (fa), inserted by the Finance Act 2023 and in force from 1 October 2023, blocks credit on goods and services used or intended to be used for corporate social responsibility obligations under Section 135 of the Companies Act, 2013.