Blocked Credits under GST

Blocked credits refer to specific purchases where GST is paid, but businesses cannot claim these as Input Tax Credit (ITC). Below is a clause-by-clause analysis of Section 17(5) of the CGST Act with examples.

Conveyance & Transportation

ITC cannot be claimed on vehicles purchased for passenger transportation such as:

• Four-wheeler motor cars
• Three-wheelers or auto rickshaws
• Two-wheeler motorbikes or cycles
• Tempo Travellers (TT) or buses with ≤13 seats (including the driver)
• Any other vehicles used on the road

Exceptions where ITC is allowed:

• Passenger transportation service, cab, bus rental, or lease service
• Driving schools
• Automobile retail shops, showrooms, or manufacturing establishments

Food, Catering, Vehicle Renting, Club, & Travel

ITC cannot be claimed on the following expenses:

• Outdoor catering, food, or beverages
• Health services, beauty treatments, plastic surgery, or cosmetic surgery
• Renting, leasing, or hiring vehicles, vessels, or aircraft (with exceptions under clauses (a) and (aa))
• Life insurance and health insurance
• Club membership or health and fitness center fees
• Leave/home travel concession or travel benefits for employees on vacation

Exceptions where ITC is allowed:

• Resale of the same goods or services
• Sale of goods or services as part of a composite or mixed sale

When the employer is legally obligated to provide these goods or services to employees

Personal Use

ITC cannot be claimed on purchases for personal use.
If goods or services are used for both personal and business purposes, ITC is allowed only for the business use portion, calculated using the common credits formula.

Building Construction

ITC cannot be claimed on:

• GST paid for building construction or job work expenses (commercial or residential)
• GST paid on materials used for construction
• Renovation or repair expenses (if capitalized in accounts)

Exceptions where ITC is allowed:

• Construction companies, builders, and promoters reselling buildings post-construction
• Purchases or construction of plants or machinery

Inward Supplies Charged to Tax Under Composition Levy & NRTP

• Suppliers registered under the composition scheme cannot collect tax or issue tax invoices. Instead, they issue bills of supply.
• ITC is not available for goods and services purchased under the composition scheme.

Free Samples & Lost Goods

ITC cannot be claimed on:

• Goods disposed of as gifts or free samples
• Lost goods
• Stolen goods
• Destroyed goods
• Goods written off in accounts