Which Input Tax Credit Is Blocked Under GST Section 17(5)?

Meeting the Section 16 conditions does not make a purchase eligible if Section 17(5) blocks its credit. Where no statutory exception applies, the GST cannot be claimed as ITC and forms part of the purchase cost.

Section 17(5) of the CGST Act, 2017 denies a registered person input tax credit under twelve clauses, from clause (a) to clause (i).

• Motor Vehicles: Clause (a) blocks motor vehicles for the transport of persons with an approved seating capacity of not more than thirteen persons, including the driver. Clauses (aa) and (ab) deny credit for vessels, aircraft, and their insurance, servicing and repair, subject to their specified exceptions.
• Food and Beverages: Clause (b)(i) blocks food, beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, the leasing, renting or hiring of blocked vehicles, and life and health insurance. Clause (b)(ii) blocks club, health centre and fitness centre membership, subject to the obligation exception at the end of clause (b).
• Construction: Clauses (c) and (d) block works contract services and own-account construction of immovable property other than plant and machinery. Clause (c) permits credit on a works contract taken as an input for another works contract; clause (d) contains no exception.
• Personal Consumption: Clause (g) blocks goods or services used for personal consumption, whoever the invoice is addressed to.
• Lost or Destroyed Goods: Clause (h) blocks goods lost, stolen, destroyed, written off, or disposed of by gift or free sample.
• Employee Travel Benefits: Clause (b)(iii) blocks leave travel concession and home travel concession given to employees on vacation.
• CSR Spending: Clause (fa) blocks goods or services used for activities relating to a company's corporate social responsibility obligations.
• Composition and Non-Resident Supplies: Clauses (e) and (f) block supplies taxed under the composition levy and inward supplies received by a non-resident taxable person. Clause (f) permits credit on goods the non-resident has imported himself; clause (e) contains no exception.
• Tax Paid Under Section 74: Clause (i) blocks any tax paid under Section 74 in respect of any period up to Financial Year 2023-24.

Under Section 17(5), "blocked" means that the credit is statutorily unavailable. Neither the timing of the claim nor the supporting documentation can make the credit available. Where a clause applies, the tax paid forms part of the purchase cost.

Section 17(5) denies the statutory entitlement even if the requirements of Section 16 are satisfied. Its opening words are "notwithstanding anything contained in sub-section (1) of section 16 and sub-section (1) of section 18". A business that satisfies every one of the Section 16 conditions is still ineligible where a clause applies. A compliant invoice or prompt payment to the supplier does not change that result.

Section 17(5) also overrides Section 18(1), which permits credit on stock held when a person first obtains registration or when an exempt supply becomes taxable. The Section 17(5) restrictions therefore apply to opening credit claimed in those circumstances. Compliance with the eligibility, timing and documentation requirements does not make credit available for a supply covered by Section 17(5).

A blocked credit claimed in error must be reversed, and interest runs on it only where the credit was actually utilised.

• Reversal: The credit is reversed in the GSTR-3B for the period in which the error is found, in Table 4(B)(1). A blocked credit still appears in GSTR-2B and auto-populates into the return, so the registered person must report the reversal; the portal does not reverse it automatically.
• Interest: Section 50(3) charges interest only where the credit was wrongly availed and utilised, and Rule 88B prescribes the period over which it runs.
• No interest on an unused credit: Credit claimed in error that remained in the electronic credit ledger and was not used to pay tax does not attract Section 50(3) interest.
• Notices and penalty: The department may raise a demand. Penalty is assessed separately, and the prescribed penalty is higher where fraud or wilful misstatement is alleged.

A claim for credit that Section 17(5) makes unavailable from the outset is a claim for wrongly availed credit rather than a timing error. A demand for wrongly availed credit must be initiated under Section 73 or Section 74 for periods up to Financial Year 2023-24, and under Section 74A from Financial Year 2024-25. Each section prescribes its own time limits for issuing the notice and passing the order.

Section 17, sub-section (5) comprises twelve lettered clauses. The clause that applies determines whether an exception makes credit available.

Section 17(5)(a): Motor Vehicles for the Transport of Persons

Input tax credit is blocked on motor vehicles for the transportation of persons with an approved seating capacity of not more than thirteen persons, including the driver.

• Further supply: Credit is available where the vehicle is bought for onward sale, as by a dealer.
• Transportation of passengers: Credit is available where the vehicle is used to supply passenger transport services.
• Driving training: Credit is available where the vehicle is used to impart training on driving such vehicles.

Clause (a) does not apply to goods carriers. It applies only to vehicles for the transportation of persons, so a truck or delivery van is not blocked by this clause. The input tax credit treatment of cars and motor vehicles depends on approved seating capacity, use and the related services.

Section 17(5)(aa): Vessels and Aircraft

Input tax credit is blocked on vessels and aircraft, except where they are used for further supply, transportation of passengers, training on navigating vessels, training on flying aircraft, or transportation of goods.

Section 17(5)(ab): Insurance, Servicing and Repair of Those Vehicles, Vessels and Aircraft

Input tax credit is blocked on general insurance, servicing, repair and maintenance. Clause (ab) applies to those services insofar as they relate to a motor vehicle, vessel or aircraft referred to in clause (a) or clause (aa).

• Eligible use: Credit is available where the vehicle, vessel or aircraft is used for one of the purposes clause (a) or clause (aa) permits.
• Manufacturers: Credit is available to a person engaged in manufacturing such motor vehicles, vessels or aircraft.
• Insurers: Credit is available to a person supplying general insurance in respect of such vehicles insured by him.

Section 17(5)(b): Food, Beverages, Memberships and Employee Travel

Clause (b) blocks three separate groups of supplies and contains two provisos: the first applies only to sub-clause (i), while the second applies to all three sub-clauses.

• Food, beverages and personal services: Food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, leasing, renting or hiring of blocked vehicles, life insurance and health insurance.
• Memberships: Membership of a club, health and fitness centre, subject only to the obligation exception at the end of the clause.
• Employee travel benefits: Travel benefits extended to employees on vacation, such as leave travel concession or home travel concession.

The first proviso makes credit available where the same category of inward supply is used to make an outward taxable supply or forms an element of a taxable composite or mixed supply. The second proviso makes credit available for all three groups where a law in force requires an employer to provide the supply to employees. CBIC clarified in Circular No. 172/04/2022-GST dated 6 July 2022 that the proviso written after sub-clause (iii) applies to the whole of clause (b). It therefore applies to food and beverages and insurance under sub-clause (i), club and fitness membership under sub-clause (ii), and travel benefits under sub-clause (iii). The leasing, renting or hiring of vehicles in sub-clause (i) has a separate qualification: credit is available where the vehicle is used for a purpose permitted by clause (a) or clause (aa). CBIC also clarified that "leasing" in sub-clause (i) refers only to the leasing of motor vehicles, vessels and aircraft. A lease of plant, premises or equipment is therefore not blocked by sub-clause (i). For motor vehicles, vessels and aircraft, sub-clause (i) applies equally to leasing, renting and hiring.

Section 17(5)(c): Works Contract Services for Immovable Property

Input tax credit is blocked on works contract services supplied for construction of an immovable property other than plant and machinery.

• Further supply: Credit is available where the works contract service is an input service for the further supply of works contract service, including a sub-contractor's supply to the main contractor.

Section 17(5)(d): Construction on a Registered Person's Own Account

Input tax credit is blocked on goods or services received for construction of an immovable property other than plant and machinery on the registered person's own account. The bar applies even where the property is used in the course or furtherance of business.

Explanation 1 defines "construction" to include re-construction, renovation, additions, alterations and repairs to the extent they are capitalised. The words "to the extent of capitalisation" qualify those five specified activities; they do not qualify construction in its primary sense. Construction of a building therefore falls within the clause whether or not the expenditure is capitalised. Re-construction, renovation, additions, alterations or repairs charged to the profit and loss account rather than capitalised fall outside the definition. For those five activities, accounting treatment determines whether clause (d) applies. The Supreme Court considered whether a building could constitute "plant" under clause (d) in Safari Retreats, and Finance Act, 2025 subsequently amended the clause. The substitution has effect from 1 July 2017 but came into force on 1 October 2025.

Section 17(5)(e): Supplies Taxed Under the Composition Scheme

Input tax credit is blocked on goods or services on which tax has been paid under Section 10, the composition levy. There is no exception.

Section 17(5)(f): Supplies Received by a Non-Resident Taxable Person

Input tax credit is blocked on goods or services received by a non-resident taxable person, except on goods imported by him.

Section 17(5)(fa): Corporate Social Responsibility Spending

Input tax credit is blocked on goods or services used or intended to be used for activities relating to a taxable person's corporate social responsibility obligations. Those obligations arise under Section 135 of the Companies Act, 2013. There is no exception.

Section 139 of the Finance Act, 2023 inserted clause (fa) immediately after clause (f). The amendment took effect on 1 October 2023.

Section 17(5)(g): Personal Consumption

Input tax credit is blocked on goods or services used for personal consumption. Addressing the invoice to the business does not change the result because clause (g) depends on actual use.

Section 17(5)(h): Goods Lost, Stolen, Destroyed, Written Off or Gifted

Input tax credit is blocked on goods lost, stolen, destroyed, written off, or disposed of by way of gift or free samples. Where credit was already taken, it must be reversed.

Clause (h) may apply after purchase. For the other clauses, the nature of the supply is known at the time of purchase. Clause (h) applies when goods are later lost, stolen, destroyed, written off, gifted or distributed as free samples, so credit validly taken earlier must then be reversed. A year-end stock write-off and the distribution of promotional goods require reversal under this clause.

Section 17(5)(i): Tax Paid Under Section 74

Input tax credit is blocked on any tax paid in accordance with Section 74 in respect of any period up to Financial Year 2023-24. Section 74 is the provision dealing with demands that involve fraud, wilful misstatement or suppression of facts.

The current wording is narrower than the former clause. Section 119 of the Finance (No. 2) Act, 2024 substituted it for the former reference to "sections 74, 129 and 130". Clause (i) therefore does not apply to detention, seizure or confiscation, and it applies only to periods up to Financial Year 2023-24. Section 74A, which governs demands from Financial Year 2024-25, is a different section and is not named in the clause.

Whether the department may invoke Section 74 where the credit was lawful when claimed remains undecided. In March 2026, the Andhra Pradesh High Court considered a construction company's challenge to a Section 74 notice alleging wilful misstatement for credit claimed from 2019-20 to 2023-24. The Court took the prima facie view that the claim had been permissible when made and that the jurisdictional fact required for Section 74 appeared to be absent. It stayed the proceedings without finally deciding the point.

Section 17(5) denies entitlement to blocked credit from the outset; Rule 86A restricts the use of credit recorded in the electronic credit ledger; reversal applies to credit that was available and claimed but later became subject to reversal. Each is governed by a different provision.

• Blocked credit (Section 17(5)): Section 17(5) denies entitlement to the credit because the supply falls within a specified clause.
• Blocked ledger (Rule 86A): The credit remains in the electronic credit ledger, but the balance cannot be debited while the restriction applies. An officer imposes the restriction for reasons recorded in writing under Rule 86A, and it ceases after one year.
• Reversed credit (Rules 37, 42, 43 and 44): The credit was available and claimed, but a later event, such as non-payment, exempt use or the sale of capital goods, required reversal. Each rule prescribes its own amount and period for the reversal of input tax credit.

Only the first is a Section 17(5) restriction. A Rule 86A restriction is imposed by an officer on the electronic credit ledger, while a reversal is reported in Table 4(B) of GSTR-3B. Rule 86A and the reversal rules are in the CGST Rules, 2017; Section 17(5) is in the Act. The applicable provision depends on whether the credit is statutorily unavailable, subject to an officer-imposed ledger restriction, or subject to reversal after a later event.

How to Check Whether ITC Is Blocked

A Rule 86A restriction appears in the electronic credit ledger on the GST portal, where the restricted amount is displayed against the ledger balance. The portal does not display a Section 17(5) restriction because Section 17(5) concerns statutory eligibility rather than ledger status.

How a Rule 86A Restriction Is Removed

The officer who imposed a Rule 86A restriction may remove it; otherwise, the restriction ceases by operation of Rule 86A(3). Credit denied by Section 17(5) cannot be made available by removing a ledger restriction because the statute denies the entitlement.

Section 17(5)(b) generally denies an employer input tax credit on employee insurance, canteen, cab and health services. The proviso after clause (b)(iii) makes credit available where a law in force requires the employer to provide the benefit, and CBIC has clarified that the proviso applies to the whole of clause (b).

• Group health and life insurance: Blocked under clause (b)(i), and restored where a law in force obliges the employer to provide the cover.
• Canteen and food provided to staff: Blocked under clause (b)(i), restored where the employer supplies the food onward as a taxable supply of the same category, and restored where a law in force obliges the employer to provide the canteen.
• Employee cabs and hired vehicles: Blocked where the vehicle is one referred to in clause (a) or clause (aa). Restored where the hire is used for a purpose those clauses permit, and restored where a law in force obliges the employer to provide the transport.
• Club, health centre and gym membership: Blocked under clause (b)(ii), whoever the member is, unless a law in force obliges the employer to provide it.
• Leave travel and home travel concession: Blocked under clause (b)(iii), and restored where a law in force makes it obligatory for the employer to provide the benefit.

Clause (b) contains two provisos with different scopes. The first appears in sub-clause (i) and applies only to that sub-clause. Credit is available where a registered person uses the inward supply to make an outward taxable supply of the same category, or supplies it as an element of a taxable composite or mixed supply. The second appears after sub-clause (iii), and CBIC has clarified that it applies to the whole of clause (b). The second proviso therefore applies to a statutory obligation concerning insurance, a canteen or travel benefits. A claim under the proviso should identify the applicable law in the working papers. A factory canteen required under the Factories Act, 1948 is one such statutory obligation.

A reported GST Council Law Committee recommendation would allow input tax credit on vehicles bought in a company's name for employee use and on group insurance. No official record of that recommendation has been published, the GST Council has not adopted it, and no notification, circular or Act gives it legal effect. Until Section 17(5) is amended and the amendment is brought into force, the credit remains blocked. Pending amendments have no legal effect until they are enacted and commenced.

Commercial necessity alone does not satisfy the exception; the employer must be subject to a statutory obligation. The working papers should therefore identify the applicable law. A recovery from employees may also constitute an outward taxable supply.

The same expense may be eligible for one business and ineligible for another because the applicable exception may depend on how the buyer uses the supply.

Clauses (a) and (aa) permit credit where the buyer uses the vehicle, vessel or aircraft for a specified purpose. Clause (b) permits credit for an outward taxable supply of the same category or where a law in force requires the employer to provide the supply. Clauses (c) and (d) exclude plant and machinery from their restrictions. Clause (f) permits credit on goods imported by a non-resident taxable person, and clause (ab)'s proviso permits credit to a manufacturer of the specified vehicles, vessels or aircraft. Commercial necessity or an invoice bearing the company's GSTIN does not by itself make an exception applicable.

CBIC clarified the application of clause (h) in Circular No. 92/11/2019-GST of 7 March 2019. Where the distribution of gifts or free samples is itself a supply under Schedule I, the supplier remains eligible for credit. The same circular states that a buy-one-get-one offer is not an individual supply of free goods but two or more supplies at a single price, so credit remains available for both.

A rate notification may impose a condition denying input tax credit independently of Section 17(5). The GST 2.0 rate changes did not amend Section 17(5). A rate-linked condition appears in the applicable rate notification rather than in Section 17(5).

The availability of several Section 17(5) exceptions depends on the buyer's outward supply, so the same purchase may be blocked or allowed according to the business making it.

• Passenger transport operators and cab aggregators: Clause (a) permits credit for vehicles used to supply passenger transport services, and clause (ab) permits credit for their insurance, servicing and repair.
• Motor dealers: Clause (a) permits credit for vehicles bought for further supply, and clause (ab)'s proviso applies to manufacturers of such vehicles.
• Driving schools: Clause (a) permits credit for vehicles used to impart training on driving such vehicles.
• Restaurants, hotels and caterers: Clause (b)(i)'s proviso permits credit for food and beverages used as an input for an outward taxable supply of the same category.
• Insurers: Clause (ab) permits a person supplying general insurance on such vehicles to take credit for the insurance, servicing and repair services. Clause (a) still applies to the vehicle itself and does not include insurers among its three exceptions.
• Works contractors and sub-contractors: Clause (c) permits credit for a works contract service received as an input for the further supply of works contract service.
• Employers under a statutory obligation: The proviso after clause (b)(iii) permits credit where a law in force requires the employer to provide the supply. CBIC has clarified that the proviso applies to the whole of clause (b), including insurance and canteen services.

No trade-specific exception applies to clause (d) own-account construction, clause (e) composition supplies, clause (fa) corporate social responsibility spending, clause (g) personal consumption, clause (h) lost and gifted goods, or clause (i) tax paid under Section 74. None contains a carve-out or proviso based on the registered person's trade or industry. Clause (b)(ii) membership likewise contains no trade-specific exception, although the statutory-obligation proviso applies to it.

The Supreme Court in Safari Retreats held on 3 October 2024 that a building functioning as plant falls outside the Section 17(5)(d) bar. Finance Act, 2025, section 124 subsequently substituted "plant and machinery" for "plant or machinery", the phrase on which the Court's reasoning depended, and deemed the substitution to have taken effect from 1 July 2017. It also inserted Explanation 2, which provides that the reference must be construed that way notwithstanding anything to the contrary in any judgment, decree or order of any court, tribunal or other authority.

Clauses (c) and (d) continue to exclude plant and machinery from their restrictions on construction of immovable property. Credit remains available for apparatus, equipment and machinery fixed to earth by foundation or structural support and used for making an outward supply. The definition excludes land, buildings and other civil structures, telecommunication towers, and pipelines laid outside factory premises. Because the substitution is deemed effective from 1 July 2017, the asset must satisfy the statutory definition of plant and machinery for every period from that date; whether a building functions as plant is no longer the test. Section 124 itself came into force on 1 October 2025 under Notification No. 16/2025-Central Tax of 17 September 2025. The GST treatment of malls, warehouses and factory buildings depends on the rules governing construction of immovable property.

Safari Retreats also upheld the constitutional validity of clauses (c) and (d), and the substitution did not alter that holding. The retrospective application of the substitution is under challenge. The Orissa High Court considered one challenge in December 2025, and the Andhra Pradesh High Court considered another in Kavya Avenues LLP, W.P. 6315/2026, on 18 March 2026. Neither Court has finally decided the issue; both granted interim protection to the respective taxpayers. A Delhi High Court order of 10 August 2026 was not a third challenge to retrospective application. It disposed of two petitions challenging the validity of clauses (c) and (d), recording that Safari Retreats had already settled their validity. Counsel raised retrospectivity as a submission, but the Bench expressed no view on it and granted no interim protection. The Delhi High Court held that Circular No. 28 (Flyer) of 1 January 2018, which predates Safari Retreats, must now be read in accordance with that judgment, a position the Revenue did not dispute. The pending arguments concern whether a deeming provision enacted in 2025 can govern a claim made years earlier and whether authorities may allege suppression where the claim was lawful when made. A business with periods before the amendment should therefore obtain advice on its own facts rather than treat either interpretation as settled.