Section 17(5) of CGST Act – Blocked Credit Under GST

Section 17(5) of CGST Act, also referred to as blocked credits, is a very important provision for every regular taxpayer under GST. It defines a list of purchases on which GST is paid but businesses cannot claim these as the Input Tax Credit (ITC). In this article, we take you through the latest clause-by-clause analysis of Section 17(5) of CGST Act or ineligible ITC with example

Here are the categories of blocked credit under GST for which the input tax credit cannot be claimed:

Clauses (a) Section 17(5) of CGST Act

ITC claims cannot be availed of on GST paid for the purchase of aircraft, ships, and aquatic vessels. ITC can, however, be claimed if the buyer is engaged in any of the following businesses:

• Goods transportation services through trucks, tillers, and tractors 
• Resale of ships, aircraft, and aquatic vessels 
• Aircraft services, cruise services, passenger transportation services, and boat rental services 
• Training schools for flying aircraft and navigation of ships. 

Clauses (aa) Section 17(5) of CGST Act

ITC cannot be claimed for insurance purchases or repairs when servicing cabs, minibuses, tempos, ships, or aircraft. However, ITC can be availed of if the buyer is engaged in the following businesses:

• Manufacture of modes of transport
• Insurance companies that sell general insurance to the modes of transport mentioned above.  

Clauses (b) Section 17(5) of CGST Act

ITC can’t be claimed on the following:

• Expenses related to employee leave or home travel concessions during vacation periods 
• Expenses on outdoor beverages, food, and catering
• Expenses incurred on health centres, fitness centres, and club memberships 
• Life insurance and health insurance 
• Renting and leasing of aircraft, motor vehicles, and vessels, such as boats and ships 
• Cost of cosmetic surgeries, plastic surgeries, beauty treatments, and health services. 

The exceptions under this clause are as follows:

• Composite or mixed sale with other goods 
• When there is a need to offer goods and services to employees for legal compliance 
• The resale of the same goods and services. 

Clauses (c) and (d) Section 17(5) of CGST Act

If you are registered for GST, you can claim a tax credit for the GST you paid on the construction of a building. This could be for commercial or residential buildings and also includes the cost of materials used for fixing or renovating a building, even if it is taken as an asset. 

If you are a construction company promoter, builder, or other businessperson, when selling these buildings after construction, you could still claim a tax credit on the expenses you incurred. You could also get a tax credit for buying or building plants and machinery. 

Clauses (e) and (f) Section 17(5) of CGST Act

Section 10 restricts a specific category of taxpayers; it does not allow them to claim input tax credits on GST paid for purchases. According to this section, certain taxable persons cannot avail themselves of ITC, even when they supply goods or services. For non-residents who are taxable, advance tax deposits are needed. They could get ITC for integrated GST paid on imported goods but are not eligible to claim ITC for any other domestic purchases.     

Clauses (g) Section 17(5) of CGST Act

ITC cannot be claimed on goods purchased and used for personal needs. However, if the goods bought are partly used for personal needs and partly for business use, then ITC will be allowed for the goods or services used for business needs. 

Clauses (h) Section 17(5) of CGST Act

ITC cannot be claimed when the goods are lost, written off, stolen, damaged, or given away. 

Clauses (i) Section 17(5) of CGST Act

ITC cannot be claimed in the following instances:

• Overpayment of tax refunds 
• Willful misstatement, confiscation, seizure of goods, and suppression of facts 
• Unlawful uses or fraudulent acquisition of excessive ITC
• Previous cases of non-payment or insufficient tax payment.

CONCLUSION

Section 17(5) of the CGST Act plays a pivotal role in shaping the input tax credit landscape in India. By delineating specific scenarios where credit is blocked, the provision aims to ensure that the GST system operates in alignment with its underlying principles. While these restrictions pose challenges for businesses, they are essential for maintaining the integrity of the tax system and preventing abuse.

As the GST framework evolves, it is imperative for businesses to stay abreast of regulatory changes, adapt their practices, and engage in proactive compliance measures to navigate the complexities associated with blocked credit under Section 17(5).

DISCLAIMER: The information provided in this article is intended for general informational purposes only and is based on the latest guidelines and regulations. While we strive to ensure the accuracy and completeness of the information, it may not reflect the most current legal or regulatory changes. Taxpayers are advised to consult with a qualified tax professional or you may contact to our tax advisor team through call +91-9871990777 or info@semantictaxgen.in