Tax Laws and Practice · Input Tax Credit and Computation of GST Liability

Blocked Credits and Apportionment of Input Tax Credit

Updated 11 October 2026 · Fact-checked

Blocked credits are inputs and services on which Section 17(5) of the CGST Act denies input tax credit even if you use them in business. Apportionment under Section 17(1) and 17(2) restricts credit to the part used for business and for taxable or zero-rated supplies. Identify the use, check the blocked list, then split the credit.

Understand Blocked Credits and Apportionment of Credit

Input tax credit (ITC) lets a registered person set off tax paid on inward supplies against output tax. But the law does not give credit on everything. Two sets of rules cut it down: apportionment in Section 17(1) to (4) and blocked credits in Section 17(5).

Apportionment deals with mixed use. Under Section 17(1), if goods or services are used partly for business and partly for other purposes, credit is restricted to the input tax attributable to business. Under Section 17(2), if they are used partly for taxable supplies (including zero-rated supplies) and partly for exempt supplies, credit is restricted to the part attributable to taxable and zero-rated supplies. Exports and supplies to SEZ are zero-rated, so they carry full credit.

Section 17(3) says what counts as exempt supply for this purpose. It includes supplies on which the recipient pays tax under reverse charge, transactions in securities, sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building. Value of activities in Schedule III is generally left out, except those in paragraph 5 of that Schedule and such activities as are prescribed under clause (a) of paragraph 8. The manner of attribution is prescribed by rules (Section 17(6)).

Banks and financial institutions, including NBFCs, that accept deposits or give loans and advances get an option under Section 17(4). They can follow Section 17(2), or take 50% of the eligible ITC on inputs, capital goods and input services each month, and the rest lapses. Once chosen, the option cannot be withdrawn for the rest of that financial year. The 50% restriction does not apply to tax paid on supplies between registered persons having the same PAN.

Blocked credit under Section 17(5) works differently. It applies "notwithstanding" Section 16(1) and Section 18(1). Even if you hold an invoice, receive the goods and use them in business, credit is not available for the listed items. Always ask: is this item on the blocked list, and does an exception apply?

Key rules to remember

Business use restriction: Credit allowed = Input tax attributable to business purposes; Section 17(1). Credit on personal or non-business use is not allowed.
Exempt and taxable split: Credit allowed = Input tax attributable to taxable supplies (including zero-rated); Section 17(2). Common credit is apportioned using the prescribed rules.
Bank or NBFC option: Credit = 50% of eligible ITC each month; the rest lapses; Section 17(4). Alternative to Section 17(2). Cannot be withdrawn in that financial year. Not applied to supplies between registered persons with the same PAN.
Motor vehicles (clause a): Blocked: motor vehicles for carrying persons, seating capacity not more than 13 including driver; Allowed if used for further supply of such vehicles, transporting passengers, or driving training.
Vessels and aircraft (clause aa): Blocked unless used for further supply, passenger transport, navigation or flying training, or transport of goods; Section 17(5)(aa).
Related services (clause ab): General insurance, servicing, repair and maintenance of blocked vehicles, vessels, aircraft are blocked; Allowed where the vehicle is used for permitted purposes, or the recipient manufactures such vehicles or supplies general insurance on them.
Clause (b) list: Food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, leasing/renting/hiring of blocked vehicles, life and health insurance; club and fitness membership; employee travel benefits such as leave or home travel concession; Exceptions: same-category outward supply or element of taxable composite or mixed supply; travel benefits where law obliges the employer.
Construction (clauses c and d): Works contract services and goods or services for construction of immovable property (other than plant and machinery) on own account are blocked; Works contract is allowed if it is an input service for further works contract service. Construction includes reconstruction, renovation, additions, alterations or repairs to the extent of capitalisation.
Other blocked items: Section 10 (composition) tax paid; non-resident taxable person (except imports); CSR under section 135 of Companies Act, 2013; personal consumption; goods lost, stolen, destroyed, written off, gifts, free samples; tax paid under section 74 for periods up to FY 2023-24; Clauses (e), (f), (fa), (g), (h) and (i).
Plant and machinery: Apparatus, equipment and machinery fixed to earth by foundation or structural support, used for outward supply, including foundation and supports; Excludes land, building or other civil structures, telecommunication towers and pipelines outside the factory premises.

How to solve Blocked Credits and Apportionment of Credit questions

Use this order for any question on eligibility of credit. It stops you from missing a block or mixing up the two kinds of restriction.

1List each input, input service and capital good in the question with its tax amount.
2Check each against Section 17(5). Match it to the clause (a) to (i) and note any exception in the proviso.
3If an exception applies (for example a vehicle used for passenger transport), treat the credit as allowed.
4For items not blocked, identify the use: wholly taxable, wholly exempt, partly business and partly personal, or mixed taxable and exempt.
5Apply Section 17(1) to remove non-business share, then Section 17(2) to remove the exempt share. Use the proportion given in the question.
6If the person is a bank or NBFC, note the Section 17(4) option and compute 50% if the question says it was chosen.
7Add up eligible credit and state the conclusion with the section cited.

Quickest way: Block first, apportion second

When to use it: Use for numerical questions with a list of purchases and limited time.

Strike out every blocked item with its clause number.
Mark exceptions in the facts (passenger transport, same-category outward supply, legal obligation).
Treat remaining credit as common or direct. Direct credit goes straight to taxable or exempt.
Apportion only the common credit using the ratio given.
Write the total and one line of conclusion citing Section 17.

Common mistakes in Blocked Credits and Apportionment of Credit

Treating blocked credit and exempt-supply reversal as the same thing.
Both reduce ITC, so they look alike.
Fix: Section 17(5) denies credit on specific items regardless of use. Section 17(1) and (2) split credit by use. Apply them separately.
Ignoring the exceptions in Section 17(5).
Students memorise the list but not the provisos.
Fix: For every blocked item, ask whether it is used for the permitted purpose, such as passenger transport for a cab company, or for same-category outward supply.
Blocking all construction credit.
Clauses (c) and (d) are remembered as a blanket ban.
Fix: Blocking does not cover plant and machinery as defined in the Explanation. Works contract credit is allowed if it is an input service for further works contract service.
Treating zero-rated supplies as exempt in apportionment.
Both carry no output tax.
Fix: Section 17(2) groups zero-rated supplies with taxable supplies. Exports keep their credit.
Applying the 50% rule to every financial company.
The option is remembered without its conditions.
Fix: It applies to banks, financial institutions and NBFCs supplying services by way of accepting deposits or extending loans or advances. It is optional, binding for the rest of the year, and does not apply to same-PAN supplies.
Forgetting that goods lost, stolen or given as free samples are blocked.
Students focus only on big-ticket items.
Fix: Keep clause (h) in your list: lost, stolen, destroyed, written off, gifts and free samples.

Worked examples

Example 1

Ravi Textiles Pvt. Ltd., Surat, a registered manufacturer of taxable goods, paid GST on the following in a month: (a) food and beverages for staff party, GST ₹12,000; (b) a car for the director's use, GST ₹1,40,000; (c) raw material, GST ₹2,00,000; (d) construction of a new factory building, GST ₹3,00,000. Compute the eligible ITC.

Show the solution

Food and beverages: blocked under Section 17(5)(b)(i). The company does not supply food in turn, so the exception does not apply. Eligible: nil.
Car for the director: a motor vehicle with seating capacity of not more than 13. It is not used for further supply, passenger transport or driving training, so it is blocked under Section 17(5)(a). Eligible: nil.
Raw material is used for taxable supplies and is not blocked. Eligible: ₹2,00,000.
Factory building construction on own account is blocked under Section 17(5)(d), because a building is not plant and machinery. Eligible: nil.
Total eligible ITC = ₹2,00,000.

Answer: Eligible ITC is ₹2,00,000. The credits of ₹12,000, ₹1,40,000 and ₹3,00,000 are blocked under Section 17(5).

Example 2

Meera Enterprises makes both taxable and exempt supplies. In a month it bought common inputs with input tax of ₹60,000, used for both kinds of supply. It also paid ₹10,000 of input tax on goods used only for taxable supplies and ₹5,000 on goods used only for exempt supplies. The attribution to taxable supplies of the common credit is determined as 70%. Compute the credit.

Show the solution

Goods used only for taxable supplies: full credit of ₹10,000 is allowed.
Goods used only for exempt supplies: credit of ₹5,000 is not allowed under Section 17(2).
Common credit of ₹60,000: the part attributable to taxable supplies is 70% × ₹60,000 = ₹42,000.
The balance of ₹18,000 is attributable to exempt supplies and is restricted.
Total eligible credit = ₹10,000 + ₹42,000 = ₹52,000.

Answer: Eligible ITC is ₹52,000. ₹23,000 (₹18,000 plus ₹5,000) is not allowed under Section 17(2).

Exam tips

Write the clause number with each blocked item, for example Section 17(5)(a). Examiners reward the provision before the conclusion.
Learn each exception along with its blocked item. Questions are often built on the exception.
In a numerical, show direct credit, common credit and blocked credit in separate lines.
State clearly that zero-rated supplies are treated like taxable supplies under Section 17(2).
For case-law style questions, give the provision, apply the facts, and end with a one-line conclusion.

Practice questions from Input Tax Credit and Computation of GST Liability

Blocked Credits and Apportionment of Credit in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Blocked Credits and Apportionment of Credit: frequently asked questions

What is blocked credit under Section 17(5) of the CGST Act?

It is a list of goods and services on which input tax credit is not available even if used in business. The list covers items such as certain motor vehicles, food and beverages, club memberships, construction of immovable property and goods lost or stolen.

Is ITC allowed on motor vehicles?

Credit is blocked on motor vehicles for carrying persons with seating capacity of not more than 13 including the driver. It is allowed if they are used for further supply of such vehicles, transporting passengers or training on driving them.

What is the difference between exempt supply and non-business use for ITC?

Non-business use falls under Section 17(1), where credit is restricted to business purposes. Exempt supply falls under Section 17(2), where credit is restricted to taxable and zero-rated supplies. Both reduce credit, but the tests are different.

Do I need to know Rules 42 and 43 for this topic?

You should know that the manner of attribution is prescribed by rules under Section 17(6). Learn the apportionment method in your study material, and use the ratio given in the question.