Section 17(5) of CGST Act - Blocked Input Tax Credit (ITC) List 2025

Introduction

One of the fundamental promises of the Goods and Services Tax (GST) was the seamless flow of credit. The idea was simple: if you pay tax on your business purchases, you can claim it back as Input Tax Credit (ITC) to reduce your output liability.

However, there is a catch. Not every GST rupee you pay is eligible for credit. Just because you have a valid tax invoice and have paid the vendor, doesn't mean the government allows you to set it off. There is a specific "Negative List" of goods and services on which ITC is strictly denied, regardless of how essential they are to your business. This list is governed by Section 17(5) of the CGST Act.

For 2025, this section has seen critical judicial and legislative updates, especially regarding real estate construction and CSR expenditure. Claiming credit on these "blocked" items is one of the fastest ways to invite a demand notice with 24% interest.

Table of Contents

1. What is Blocked Credit (Section 17(5))?
2. Motor Vehicles: The 13-Seater Rule
3. Food, Beverages, and Outdoor Catering
4. CSR Expenditure: The 2025 Status
5. Works Contract and Real Estate (The "Plant & Machinery" Amendment)
6. Personal Consumption and Gifts
7. Membership of Clubs and Health Centers
8. Goods Lost, Stolen, or Written Off
9. What Happens if You Claim Ineligible ITC?
10. FAQs

What is Blocked Credit (Section 17(5))?

Section 17(5) overrides Section 16 (which allows ITC). It starts with a "Non-Obstante" clause (Notwithstanding anything contained...), which means this section has the final say. If an item falls in this list, no general argument of "business furtherance" can save you. You simply cannot claim the credit.

Get instant access to markets—Open Demat account

Motor Vehicles: The 13-Seater Rule

This is the most common error point for businesses.

The Restriction:

ITC is blocked on motor vehicles for the transportation of persons having a seating capacity of up to 13 persons (including the driver).

• Example: If you buy a sedan or an SUV for your Director or Sales Manager, the GST paid (28% + Cess) is a cost. You cannot claim ITC.

The Exceptions (When ITC IS Allowed):

You can claim credit on cars/bikes only if you are in the specific business of:

1. Further Supply: Car dealers selling cars.
2. Transportation of Passengers: Taxi operators, Ola/Uber drivers, Bus operators.
3. Training: Driving schools.
4. Capacity > 13: If you buy a bus or tempo traveler (seating > 13) for staff transport, ITC is allowed.

Note: ITC on Trucks/Lorries (Goods Transport Vehicles) is always allowed, as Section 17(5) restricts only "passenger" vehicles.

Food, Beverages, and Outdoor Catering

Did you order lunch for a client meeting? Or organize a grand office party?

The Restriction:

ITC is blocked on food and beverages, outdoor catering, beauty treatment, and plastic surgery.

The Exceptions:

1. Same Line of Business: A catering company can claim ITC on the food ingredients it buys because it is "sub-contracting" or reselling.
2. Legal Obligation: If an employer must provide food/beverages to employees under any law (e.g., Factories Act requiring a canteen for factories with >250 workers), ITC is allowed.

CSR Expenditure: The 2025 Status

Corporate Social Responsibility (CSR) is mandatory for big companies. For years, companies claimed ITC on CSR expenses, arguing it was "in the course of business."

The Amendment (Clause fa):

The government inserted a specific clause (fa) to settle this dispute.

Current Rule: ITC is strictly BLOCKED on goods or services used for CSR activities mandated under Section 135 of the Companies Act, 2013.

• Impact: If you buy computers for a village school as part of CSR, the GST paid on those computers cannot be claimed.

Works Contract and Real Estate (The "Plant & Machinery" Amendment)

This is a highly litigated area.

The Restriction:

ITC is blocked for:

1. Works Contract Services for the construction of immovable property.
2. Goods/Services received for the construction of immovable property on own account.

• Example: If you build an office building or a warehouse, the GST paid on cement, steel, and architect fees is blocked.

The 2025 "Plant & Machinery" Clarification:

Following the Safari Retreats judgment controversy, the law was tightened.

• You CAN claim ITC if the expenditure is for "Plant and Machinery" (e.g., A/C plant, telecommunication tower foundation).
• You CANNOT claim ITC for "Civil Structures" (Walls, Foundation of building), even if you are in the business of renting that building.

Personal Consumption and Gifts

Clause (g): Goods or services used for personal consumption.

• Example: A Director buys a Smart TV on the company GSTIN but installs it at his home. This is blocked.

Clause (h): Goods disposed of by way of Gift or Free Samples.

• Example: If you give Diwali gifts to clients or distribute free samples of your product, you must reverse the ITC claimed on purchasing those items. You cannot enjoy ITC if there is no output tax (sale).

Membership of Clubs and Health Centers

ITC is blocked on:

• Membership of a club (Golf club, Gym, Social club).
• Health and fitness centre fees.
• Travel benefits extended to employees on vacation (LTC/LTA).

Exception: Allowed only if the government mandates the employer to provide these specific services.

Goods Lost, Stolen, or Written Off

If you bought raw material and claimed ITC, but later the goods were:

• Lost in a fire/theft.
• Stolen.
• Destroyed.
• Written off in books (as obsolete).

You must reverse the ITC availed on such goods. The logic is that since these goods were never sold (no output tax), the input tax cannot be claimed.

What Happens if You Claim Ineligible ITC?

If you mistakenly claim blocked credit in GSTR-3B:

1. Reversal: You must reverse the amount in Table 4(B) of GSTR-3B.
2. Interest: If you utilized the credit, you must pay interest at 24% p.a. (or 18% if unutilized).
3. Penalty: The officer can levy a penalty for wrongful availment.