Indirect Tax Laws · Input Tax Credit

Blocked Credits under Section 17(5) of the CGST Act

Updated 5 October 2026

Blocked credit means input tax credit that Section 17(5) of the CGST Act denies even when you hold a valid invoice and use the input in business. It covers items like motor vehicles, food, club memberships, construction of buildings and personal use. To solve a question, identify the item, check the clause, then test its exception.

Understand Blocked Credits under Section 17(5)

Normally, you can take credit of GST paid on inputs, input services and capital goods used in the course or furtherance of business, if you meet the conditions of Section 16. Section 17(5) is an exception. It begins with a non-obstante clause, so it overrides Section 16(1) and Section 18(1). If an item falls in the blocked list, credit is denied even though the invoice is valid, the supplier has paid tax and the item is used for business.

Why does the law block these items? They are either personal in nature (food, club, health, travel concessions, personal consumption) or they create assets and benefits that are not directly tied to taxable output (cars, buildings). The law therefore denies credit unless a specific exception shows the item is part of your taxable supply chain.

The main blocked heads are: motor vehicles (up to 13 seats including the driver), vessels and aircraft, and related insurance, servicing and repair; food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery; rent-a-cab, life insurance and health insurance; club and health and fitness centre membership; employee leave or home travel concession; works contract and goods or services for construction of immovable property (other than plant or machinery); goods or services received by a non-resident taxable person, except goods imported by that person; personal consumption; goods lost, stolen, destroyed, written off or given as gifts or free samples; and tax paid under Sections 74, 129 and 130 (demand for fraud or suppression, detention and confiscation).

A registered person paying tax under the composition levy is not a Section 17(5) head. Section 10(4) itself denies such a person any input tax credit.

Every head has a condition or exception, except a few that are flat blocks. Most exam marks come from the exception. For example, a car is blocked, but not when you are a dealer selling cars, a cab operator carrying passengers, or a driving school. Food is blocked, but not when you supply the same category of food onward, for example a restaurant buying food items to make taxable food supplies.

Section 17(5)(b) covers three groups of items, and you should keep them apart. Their exceptions are different.

Food group: food and beverages, outdoor catering, beauty treatment, health services, and cosmetic and plastic surgery.
Cab and insurance group: rent-a-cab, life insurance and health insurance.
Club and travel group: membership of a club or health and fitness centre, and travel benefits for employees on vacation (leave or home travel concession).

The exceptions differ by group.

For the food group, credit is allowed where the inward supply is of a category used to make an outward taxable supply of the same category, or is an element of a taxable composite or mixed supply.
For rent-a-cab, life insurance and health insurance, credit is allowed in only two cases. First, the Government notifies the service as one that an employer is obliged to provide to employees under any law. Second, the inward supply is of the same category as the outward supply. The composite or mixed supply limb does not apply to these three services.
For the club and travel group, the same-category exception does not help. Credit is allowed only where the law makes it obligatory for the employer to provide the benefit to its employees. Without such a legal obligation, it stays blocked.

The building versus plant or machinery test matters a great deal. Credit on construction of a building or civil structure for your own use is blocked, even when you capitalise it. Clause (d) also blocks goods and services used to construct an immovable property (other than plant or machinery) on your own account even when the property is used in the course of business. A building you construct and lease out is a common exam trap: it is still blocked. Credit on plant or machinery is allowed. The definition of plant and machinery is in the Explanation to Section 17 and applies to clauses (c) and (d). It covers apparatus, equipment and machinery fixed to earth by foundation or structural support and used for making outward supply, including that foundation and support. It excludes land, buildings and other civil structures, telecommunication towers, and pipelines laid outside the factory premises.

Key rules to remember

Overriding effect: Section 17(5) overrides Section 16(1) and Section 18(1); A valid invoice and business use do not save credit on a blocked item.
Motor vehicles (clause a): Blocked if used to carry persons and approved seating capacity ≤ 13 (including driver); Allowed if used for further supply of such vehicles, transporting passengers, or driving training. A vehicle with more than 13 seats, or goods vehicles, is not hit by this clause.
Vessels and aircraft (clause aa): Blocked unless used for further supply, transporting passengers, or navigation or flying training; Related general insurance, servicing, repair and maintenance (clause ab) follow the same exceptions. Credit is also allowed to a person who manufactures such vehicles, vessels or aircraft, or supplies general insurance for them.
Food, beauty, health etc. (clause b): Food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery: blocked; Allowed when the inward supply is of a category used to make an outward taxable supply of the same category, or as an element of a taxable composite or mixed supply.
Rent-a-cab, life and health insurance (clause b): Rent-a-cab, life insurance and health insurance: blocked; Allowed only if (i) the Government notifies the service as obligatory for an employer to provide to employees under any law, or (ii) the inward supply is of the same category as the outward supply. There is no composite or mixed supply limb for these three services.
Membership and travel concession (clause b): Club membership, health and fitness centre membership, and employee leave or home travel concession: blocked; Allowed only where it is obligatory for the employer to provide the benefit to employees under any law. The same-category outward supply exception does not apply.
Construction (clauses c and d): Works contract or goods and services for construction of immovable property (other than plant or machinery) on own account: blocked; Construction includes reconstruction, renovation, additions, alterations or repairs, to the extent capitalised. A works contract service is allowed only if used for further supply of works contract service. Clause (d) has no exception for a building you construct for own use, even when it is used in business or leased out for taxable rent. Plant and machinery is defined in the Explanation to Section 17, applicable to clauses (c) and (d).
Other blocked heads: Goods or services received by a non-resident taxable person, except goods imported by that person (clause e); personal consumption; lost, stolen, destroyed, written off or gifted goods and free samples; tax paid under Sections 74, 129, 130; Learn these as a list. Each is a one-line rule with little room for exceptions. A composition dealer is separate: it is not a Section 17(5) head, because Section 10(4) itself denies such a person any input tax credit.

How to solve Blocked Credits under Section 17(5) questions

Use this method for any question that asks whether credit is available on a given purchase.

1List each purchase separately with its GST amount. Do not treat the whole case as one lump.
2For each purchase, decide which Section 17(5) head it matches: vehicle, vessel or aircraft, food and similar, membership, insurance or cab, construction, personal use, loss of goods, or others.
3If no head matches, credit is not blocked by Section 17(5). Then check normal conditions of Section 16 and any reversal rules.
4If a head matches, read the facts for the exception: seating capacity, nature of business, purpose of use, same-category outward supply, legal obligation on the employer, or plant or machinery.
5For construction, ask two things: is it for own account, and is the asset a building or civil structure or plant or machinery? Foundation and structural support for plant or machinery stay eligible.
6Check who the buyer is. A non-resident taxable person is covered by Section 17(5)(e): no credit except on goods imported by that person. A composition dealer is denied credit by Section 10(4), not by Section 17(5).
7Add up eligible and blocked amounts and make sure the total ties to the GST in the question.
8Write the answer in provision, facts, conclusion form, naming the clause and the exception you applied.

Quickest way: Item, clause, exception in 30 seconds

When to use it: Use for MCQs and short-note parts where you must classify several purchases fast.

Underline each item and its use in the case.
Tag it: V (vehicle), F (food, outdoor catering, beauty, health, cosmetic or plastic surgery), I (rent-a-cab, life or health insurance), M (club or fitness membership, leave or home travel concession), C (construction), P (personal or loss).
For each tag, ask one question: V, what is the seating and use? F, is the outward supply of the same category, or is the input an element of a taxable composite or mixed supply? I, is the service notified as obligatory for employers, or is the outward supply of the same category? M, does any law make it obligatory for the employer to provide it? If not, it is blocked. C, is it a building or plant or machinery?
If the case facts match the exception for V, F, I, M or C, allow the credit. Otherwise block it.
Add up the blocked and allowed amounts and check against the total.

Common mistakes in Blocked Credits under Section 17(5)

Blocking credit on every motor vehicle.
Students remember 'motor vehicles are blocked' and skip the conditions.
Fix: Check three things: the vehicle carries persons, seating is 13 or fewer including the driver, and use does not fall in an exception. A bus with more than 13 seats or a goods vehicle is not blocked by clause (a).
Allowing credit on food or health services because they are used for business.
Students confuse business use with the exception.
Fix: Business use is not enough. The exception needs the inward supply to be of the same category as the outward taxable supply, or to be an element of a taxable composite or mixed supply. Staff lunch is blocked.
Treating all construction as blocked, including foundation for machines.
Students ignore the plant or machinery carve-out.
Fix: Block buildings and civil structures, but allow credit on plant or machinery, including the foundation and structural support that hold it to earth.
Saying capitalisation makes credit eligible.
Students mix income tax depreciation logic with GST.
Fix: Capitalisation is relevant only to decide how much repair or renovation counts as construction. It never unblocks credit on a building.
Confusing blocked credit with reversal under Section 17(2) or 17(1).
Both reduce the credit, so they look alike.
Fix: Blocked credit is never taken at all. Reversal applies to credit that was validly taken and later must be reversed because of exempt supplies or non-business use.
Mixing up the non-resident taxable person bar and the composition bar.
Both are short rules, they are learnt last, and students file them under the same head.
Fix: Keep them apart. A non-resident taxable person cannot take credit on goods or services received, except on goods imported by that person (Section 17(5)(e)). A composition dealer does not take credit at all because Section 10(4) denies it, not Section 17(5).
Treating rent-a-cab, life insurance and health insurance as blocked in every case.
Students learn them as a flat list and miss the two exceptions.
Fix: Allow credit if the Government has notified the service as obligatory for an employer to provide to employees under any law, or if the inward supply is of the same category as the outward supply.
Treating club membership and travel concession as blocked with no exception.
Students learn them as flat blocks because the same-category exception does not apply to them.
Fix: Check whether the law makes it obligatory for the employer to provide the benefit to employees. If it does, credit is allowed. If not, it is blocked.

Worked examples

Example 1

Sharma Travels Ltd, a registered tour operator, bought three vehicles in the year. (1) A 9-seater van for dropping its office staff home, GST ₹1,20,000. (2) A 30-seater bus for staff pick-up and drop, GST ₹2,00,000. (3) A 5-seater car to carry tourists on paid tours, GST ₹80,000. Ignoring other Section 16 conditions, find the credit available and blocked.

Show the solution

Vehicle 1: motor vehicle carrying persons with seating capacity of 13 or fewer (9 seats). Clause (a) applies. Staff drop is not further supply of vehicles, passenger transport as a service, or driving training. No exception, so the credit is blocked: ₹1,20,000.
Vehicle 2: seating is 30, more than 13. Clause (a) does not apply, so Section 17(5) does not block it. Credit is available, subject to Section 16 conditions: ₹2,00,000.
Vehicle 3: seating is 5, so clause (a) applies. But the car is used for transporting passengers for a fee, which is an exception. Credit is available: ₹80,000.
Eligible credit: ₹2,00,000 + ₹80,000 = ₹2,80,000. Blocked: ₹1,20,000. Total GST: ₹4,00,000, which ties.

Answer: Credit available: ₹2,80,000 (bus and tourist car). Credit blocked: ₹1,20,000 (9-seater staff van).

Example 2

Anand Engineering Ltd, a registered manufacturer, set up a new plant. It incurred GST as follows: (a) cement, steel and architect services for the factory building, capitalised, ₹10,00,000; (b) foundation and structural support for a heavy machine fixed to earth and used in manufacture, ₹2,00,000; (c) lunch for staff in the office, ₹30,000; (d) annual membership of a health club for directors, ₹20,000. No law obliges Anand to provide the health club membership. Find the eligible and blocked credit.

Show the solution

Item (a): goods and services for construction of a building on own account. A factory building is a civil structure and is excluded from plant and machinery. Clause (d) blocks it, even though it is capitalised and used for business: ₹10,00,000 blocked.
Item (b): the machine is fixed to earth by foundation and used to make outward supply. The foundation and structural support are part of plant and machinery. Clause (d) does not apply, so credit is available: ₹2,00,000.
Item (c): food and beverages for staff. Section 17(5)(b) blocks it. Anand does not supply food onward, so the same-category exception does not apply: ₹30,000 blocked.
Item (d): membership of a club or health and fitness centre is blocked under Section 17(5)(b). The only relief is where the law makes it obligatory for the employer to provide it, and no law does so here: ₹20,000 blocked.
Blocked total: ₹10,00,000 + ₹30,000 + ₹20,000 = ₹10,50,000. Eligible: ₹2,00,000. Total GST: ₹12,50,000, which ties.

Answer: Eligible credit: ₹2,00,000 (foundation for machine). Blocked credit: ₹10,50,000 (building ₹10,00,000, staff lunch ₹30,000, health club ₹20,000).

Exam tips

Practise one-line statements of each head with its exception. Examiners usually test the exception, not the rule.
In case scenarios, read the seating capacity, the nature of the buyer's business and the purpose of use first. These facts decide the answer.
For construction questions, always say whether the asset is a building or plant or machinery and why. This reasoning carries the marks.
Show the arithmetic: list eligible and blocked amounts and tie them to the total GST. MCQs often give figures.
In written answers, name the clause of Section 17(5) only if you are sure of it. Otherwise describe the head in words and still state the conclusion.

Practice questions from Input Tax Credit

Blocked Credits under Section 17(5): frequently asked questions

What is blocked credit under Section 17(5)?

It is input tax credit that the CGST Act denies on specified goods and services, even if you hold a valid tax invoice and use them in business. Examples are motor vehicles, food, club membership and construction of buildings. The section overrides the general eligibility rule in Section 16(1).

Is credit on motor vehicles always blocked?

No. It is blocked only for vehicles used to carry persons with seating capacity of 13 or fewer including the driver. It is allowed if the vehicle is used for further supply of such vehicles, transporting passengers, or imparting driving training. Vehicles with more than 13 seats, and goods vehicles, are not covered by this clause.

What is the difference between a building and plant or machinery for ITC?

Credit on construction of a building or civil structure on own account is blocked. Plant or machinery means apparatus, equipment and machinery fixed to earth by foundation or structural support and used to make outward supply, including that foundation and support. The definition is in the Explanation to Section 17 and applies to clauses (c) and (d). It excludes land, buildings, other civil structures, telecom towers and pipelines outside the factory premises, so credit is allowed on plant or machinery.

Can a restaurant claim ITC on food it buys?

Yes, where the inward supply is of the same category as its outward taxable supply, or is an element of a taxable composite or mixed supply. That is the exception to the food and beverages block. Food bought for staff or for personal use is still blocked.