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Goods and Services Tax (GST) and Corporate Tax Planning · Input Tax Credit and Computation of GST Liability

Blocked Credits and Apportionment of Credit under GST

Updated 11 October 2026 · Fact-checked

Blocked credits are goods and services on which input tax credit is barred by Section 17(5), such as certain motor vehicles, food, club memberships and construction of immovable property. Apportionment under Section 17(1) and 17(2) limits credit to business use and taxable supplies. You identify blocked items first, then reverse the common credit in the exempt-turnover ratio.

Understand Blocked Credits and Apportionment of Credit

Input tax credit is not a free right. Section 16 gives you the credit. Section 17 then cuts it down in two ways: apportionment and blocking.

Apportionment applies when the same input serves two uses. Under Section 17(1), if goods or services are used partly for business and partly for other purposes, credit is limited to the part 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 limited to the part attributable to taxable supplies.

Blocked credit is different. Section 17(5) starts with "notwithstanding" Section 16(1) and Section 18(1). So even if you meet every condition for credit, the credit is simply not available on the listed items. Apportionment is about how you use an input. Blocking is about what the input is.

The value of exempt supply is as prescribed. Under Section 17(3) 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. Activities in Schedule III are left out of it, except paragraph 5 of that Schedule and such activities as may be prescribed for clause (a) of paragraph 8.

Banks and financial institutions, including NBFCs, that accept deposits or give loans and advances get a choice under Section 17(4). They can follow Section 17(2) or take 50% of the eligible credit each month and let the rest lapse. Once chosen, the option cannot be withdrawn for the rest of that financial year.

Key rules to remember

Business purpose limit
Credit allowed = input tax attributable to business purposes
Section 17(1). Credit on non-business use is not allowed.
Exempt supply limit
Credit allowed = input tax attributable to taxable supplies (including zero-rated)
Section 17(2). Credit attributable to exempt supplies must be reversed.
Common credit reversal (inputs and input services)
Reversal = Common credit × (Exempt turnover ÷ Total turnover)
Rule 42 of the CGST Rules works on this ratio after first removing blocked credit and credit used exclusively for taxable or exempt supplies. The ratio is worked out for the month and trued up for the year.
Common capital goods credit
Monthly credit = Tax on capital goods ÷ 60; reversal each month = monthly credit × (Exempt turnover ÷ Total turnover)
Rule 43 treats the credit as spread over five years (60 months). Use it only for capital goods used for both taxable and exempt supplies.
Banks and NBFCs option
Credit = 50% of eligible ITC each month; balance lapses
Section 17(4). The 50% limit does not apply to tax on supplies between registered persons having the same PAN. Option cannot be withdrawn during the financial year.
Blocked credit list
Section 17(5)(a) to (i)
Motor vehicles up to 13 persons, vessels and aircraft, related services, food and beverages and similar items, club memberships, employee travel benefits, works contract and own construction, composition tax, non-resident taxable person, CSR, personal use, lost or gifted goods, and tax paid under Section 74 up to FY 2023-24.

How to solve Blocked Credits and Apportionment of Credit questions

Use the same order every time. First remove what is blocked. Then apportion what is left.

  1. 1List every input, input service and capital good in the question with its GST amount.
  2. 2Check each against Section 17(5). Mark blocked items, and check the exceptions and provisos before you block them.
  3. 3Remove credit on items used only for personal or non-business purposes (Section 17(1)).
  4. 4Separate credit used exclusively for taxable supplies (fully allowed) and exclusively for exempt supplies (fully reversed).
  5. 5For the common credit, find exempt turnover and total turnover. Remember the value of exempt supply includes reverse charge supplies, securities transactions, sale of land and, subject to Schedule II, sale of building.
  6. 6Apply the ratio: Common credit × exempt turnover ÷ total turnover. For common capital goods, use one-sixtieth of the tax per month first.
  7. 7State the eligible credit and the reversal separately, and add the legal basis: Section 17(2) and the relevant rule.
  8. 8If the registrant is a bank or NBFC, check whether the Section 17(4) 50% option applies.

Quickest way: Block first, ratio second

When to use it: Use this for numerical questions with many purchases and little time.

  1. Draw three columns: blocked, exclusive use, common.
  2. Tick each item into one column, starting with the Section 17(5) list.
  3. Blocked credit is ₹0. Exclusive taxable credit is allowed in full. Exclusive exempt credit is fully reversed.
  4. Multiply only the common column by exempt turnover ÷ total turnover.
  5. Eligible credit = exclusive taxable + common credit less reversal.

Common mistakes in Blocked Credits and Apportionment of Credit

  • Treating all motor vehicle credit as blocked.

    Students remember the heading and skip the exceptions.

    Fix: Credit is blocked for vehicles seating up to 13 persons including the driver. It is allowed when the vehicle is used for further supply, passenger transportation or driving training.

  • Blocking food, health or insurance credit without the proviso.

    The list in Section 17(5)(b) looks absolute.

    Fix: Credit is available where the input is used to make an outward taxable supply of the same category, or as an element of a taxable composite or mixed supply.

  • Blocking all construction credit, including plant and machinery.

    Students read only the words 'immovable property'.

    Fix: Clauses (c) and (d) exclude plant and machinery. Land, buildings and civil structures do not count as plant and machinery, nor do telecom towers and pipelines outside the factory premises.

  • Applying the exempt-turnover ratio to the full credit, including blocked credit.

    Students go straight to the ratio.

    Fix: Remove blocked credit and exclusive-use credit first. Apply the ratio only to the common credit.

  • Leaving out items from exempt turnover.

    Students count only supplies of exempt goods.

    Fix: Include reverse charge supplies, securities transactions, sale of land and, as permitted, sale of building, as Section 17(3) says.

  • Forgetting CSR and personal consumption as blocked.

    These are in the later clauses and get missed.

    Fix: Remember clause (fa) for goods or services used for CSR obligations under Section 135 of the Companies Act, 2013, and clause (g) for personal consumption.

Worked examples

Example 1

Rao Textiles Ltd, a registered company, receives these inward supplies in a month: (a) a five-seater car bought for use by its managing director; (b) the same model car bought by Swift Cabs Pvt Ltd to run a taxi service; (c) works contract services for building a new factory shed on its own land; (d) a heavy machine's foundation and structural support, used to make its outward supplies; (e) goods used for its CSR project. State which credits are available.

Show the solution
  1. (a) A car seating up to 13 persons is blocked by Section 17(5)(a). The company is not in any exception, as it uses it for the director. Credit is blocked.
  2. (b) For Swift Cabs, the car is used for transporting passengers, which is an exception in clause (a)(B). Credit is available.
  3. (c) A works contract for constructing an immovable property, other than plant and machinery, on own account is blocked by clauses (c) and (d). The shed is a civil structure, so it is not plant and machinery. Credit is blocked.
  4. (d) Plant and machinery includes the foundation and structural support of apparatus fixed to earth and used to make outward supplies. It is outside clauses (c) and (d), so credit is available, subject to the other conditions of Section 16.
  5. (e) Clause (fa) blocks credit on goods or services used for CSR obligations under Section 135 of the Companies Act, 2013. Credit is blocked.

Answer: Credit is blocked for (a), (c) and (e). It is available for (b) and (d).

Example 2

Mehta Enterprises makes taxable supplies and exempt supplies. In a month, its total input tax credit is ₹3,50,000. Of this, ₹30,000 relates to items blocked under Section 17(5), ₹80,000 is used exclusively for taxable supplies, and ₹40,000 is used exclusively for exempt supplies. The rest is common credit. Turnover for the month is: taxable ₹45,00,000 and exempt ₹15,00,000. Compute the eligible credit.

Show the solution
  1. Common credit = 3,50,000 − 30,000 − 80,000 − 40,000 = ₹2,00,000.
  2. Total turnover = 45,00,000 + 15,00,000 = ₹60,00,000.
  3. Exempt ratio = 15,00,000 ÷ 60,00,000 = 25%.
  4. Reversal on common credit = 2,00,000 × 25% = ₹50,000.
  5. Eligible common credit = 2,00,000 − 50,000 = ₹1,50,000.
  6. Eligible credit = 80,000 + 1,50,000 = ₹2,30,000.
  7. Check: 30,000 blocked + 40,000 exempt-exclusive + 50,000 reversed + 2,30,000 eligible = ₹3,50,000.

Answer: Eligible credit is ₹2,30,000. The rest, ₹1,20,000, is blocked or reversed.

Exam tips

  • In case questions, quote the clause of Section 17(5) and then the exception that applies, if any. Marks go for the conclusion with reasons.
  • Always write the order: blocked first, then exclusive use, then the ratio on common credit.
  • Show the total check at the end of a numerical answer. It catches arithmetic slips.
  • Learn the proviso to clause (b)(i) and the plant and machinery explanation well. They are common sources of trap facts.
  • For banks and NBFCs, state the Section 17(4) choice and that it cannot be withdrawn during the financial year.

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 does Section 17(5) of the CGST Act do?

It lists goods and services on which input tax credit is not available, even if the conditions of Section 16(1) and Section 18(1) are met. The list covers certain vehicles, vessels and aircraft, food and similar items, club memberships, construction of immovable property, CSR spending, personal use and a few other cases.

Is credit on a car always blocked?

No. Credit on motor vehicles for transporting up to 13 persons including the driver is blocked. It is allowed if the car is used for further supply of such vehicles, transportation of passengers or training on driving such vehicles.

What is apportionment of credit in GST?

It means limiting credit to the part of the input tax attributable to business purposes and to taxable supplies, including zero-rated supplies. Credit attributable to personal use or to exempt supplies has to be reversed.

Do I need the rule numbers 42 and 43 for the exam?

Yes, you should know them as the working rules that put Section 17 into practice. Rule 42 deals with inputs and input services, and Rule 43 with capital goods used for both taxable and exempt supplies. Learn the method, not just the numbers.