Blocked Input Tax Credit: The Section 17(5) List Every Business Claims By Mistake

The principal blocks

• Motor vehicles for transport of persons with seating capacity up to thirteen, including the driver, with exceptions below.
• Vessels and aircraft, with similar exceptions.
• Food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery.
• Membership of a club, health and fitness centre.
• Rent-a-cab, life insurance and health insurance, except where an employer is obliged by law to provide them.
• Travel benefits extended to employees on vacation, including leave or home travel concession.
• Works contract services for construction of immovable property, except plant and machinery, and except where it is an input service for a further works contract.
• Goods or services received for construction of immovable property on one's own account, even if used in business.
• Goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples.
• Tax paid under the composition scheme, and tax paid after detection of fraud or confiscation.

The exceptions that restore the credit

Motor vehicle credit is available where the vehicle is used for making a further supply of such vehicles, for transportation of passengers, for imparting driving training, or where seating capacity exceeds thirteen. Goods transport vehicles are not blocked at all.

Food, beverages, health services and the rest become available where they are used to make an outward taxable supply of the same category, or where an employer is statutorily obliged to provide them to employees. That last exception became significant for canteen and transport facilities mandated under labour law.

Construction: the block most businesses argue about

Credit on goods and services used for construction of immovable property on your own account is blocked even when the property is used entirely for business. Construction here includes reconstruction, renovation, additions, alterations and repairs to the extent capitalised.

The carve-out is plant and machinery, which has its own definition excluding land, buildings, telecommunication towers and pipelines laid outside factory premises. Whether a particular installation is plant or building has generated a great deal of litigation, and the answer frequently turns on whether it can be dismantled and moved.

What it costs to get wrong

Credit wrongly availed and utilised attracts interest at eighteen per cent a year under Section 50(3), from the date of utilisation. A penalty under Section 73 or 74 follows, depending on whether the department alleges fraud or suppression.

The amounts accumulate quietly, because a blocked credit claimed monthly for three years is only discovered in one audit, by which time interest has run on every month of it.

Frequently asked questions

### Can I claim ITC on a company car?

Generally no, if it seats thirteen or fewer including the driver. Credit becomes available only where the vehicle is used for further supply of vehicles, passenger transportation, or driving instruction. Goods transport vehicles fall outside the block entirely.

### Is ITC available on employee insurance?

Only where the employer is obliged by law to provide it. Voluntary group health or life cover is blocked under Section 17(5)(b). Where a statute or State rule mandates the cover, the obligatory-provision exception restores the credit.

### Can I claim ITC on office construction?

No, where the construction is on your own account, even if the office is used wholly for business. The block covers reconstruction, renovation and repairs to the extent capitalised. Plant and machinery is excepted, which is where most of the argument lies.

### Does blocked credit show up in GSTR-2B?

Yes, which is precisely the problem. GSTR-2B reports what your suppliers filed; it does not assess eligibility. Reconciliation confirms the invoice exists, not that you may claim it, so the Section 17(5) screen has to be a separate step.