GST Blocked Credits — Which ITC You CANNOT Claim under Section 17(5) (India 2026)

1What is Section 17(5)?

Section 17(5) of the CGST Act 2017 lists specific categories of goods and services where ITC is blocked — meaning even if a registered supplier has charged GST on the supply, the recipient CANNOT credit that GST against output tax liability. The block applies regardless of whether the purchase was for business use. Non-compliance discovered during an audit results in recovery of the wrongly availed ITC plus 18% interest and a minimum 10% penalty.

2Permanently blocked ITC — the main categories

• Motor vehicles and conveyances (capacity ≤ 13 persons, including cars) — except where used for further supply (dealers), transport of passengers, imparting driving training, or courier/cargo
• Food & beverages, outdoor catering, beauty treatment, health services, cosmetic surgery — except where used to make the same type of outward taxable supply or an obligation under CSR
• Membership in a club, health club, fitness centre
• Travel benefits to employees (leave travel, home travel)
• Works contract services for construction of immovable property — except plant and machinery and where the supplier is in the same line of business
• Construction or acquisition of immovable property — blocked even if for business

3Exceptions — when blocked ITC is actually allowed

• Motor vehicles with seating capacity > 13 persons (buses, minibuses)
• Cars used by car dealers for re-sale
• Ambulances used by hospitals
• Goods vehicles and trucks (not motor cars)
• ITC on food/beverages if the company runs a restaurant or food-processing business as its core activity
• Works contract on plant and machinery (not civil structure)
• Club memberships if the club activity is the company's taxable output supply

4Grey areas and recent court rulings

The Bombay High Court in Safari Retreats (affirmed by the Supreme Court in 2024) held that ITC on construction of commercial property used for renting is available — overturning earlier AAR rulings. The distinction between 'plant and machinery' and 'immovable property' remains contested. Always take a CA's view on construction-related ITC and document the intended use of any asset whose ITC is borderline blocked.

5Practical checklist for businesses

• Review every purchase invoice before claiming ITC — check if the goods/service falls under § 17(5)
• Document the business purpose for motor vehicle purchases
• If ITC is wrongly availed, reverse it in GSTR-3B and pay interest
• Do not claim ITC on employee welfare items (gym memberships, food coupons, club memberships) unless you are in that line of business
• For construction: only claim ITC on plant, machinery and movable equipment — not civil structure