Blocked ITC Under GST: Section 17(5) Master Chart (FY 2026-27)

If you file GST returns or advise businesses on compliance, understanding blocked Input Tax Credit (ITC) is non-negotiable. Section 17(5) of the CGST Act 2017 lists specific goods and services on which ITC cannot be claimed – even if GST was paid on them. For FY 2026-27, these restrictions remain broadly the same, but recent circulars and court rulings have added important nuances every taxpayer must know.

This guide covers all major categories of blocked ITC under Section 17(5), including motor vehicles, personal consumption items, immovable property, and more. We have included commonly used HSN/SAC codes, eligibility exceptions, and key CBIC clarifications so you have everything in one place.

Quick Reference: Blocked ITC at a Glance

Disclaimer: HSN/SAC codes mentioned in this article are indicative and represent commonly used entries only. Always refer to Section 17(5) of the CGST Act and relevant CBIC circulars for complete legal provisions.

Motor Vehicles, Vessels & Aircraft

Goods Transport Vehicles – ITC Allowed

ITC is fully available on goods transport vehicles (HSN 8701, 8704) and all associated costs – insurance, servicing, repairs, and spare parts (SAC 997134, 998714). Since these vehicles are used directly for taxable business activities, there is no restriction under Section 17(5).

Passenger Vehicles with Seating Capacity > 13 Persons – ITC Allowed

Buses, maxi-cabs, and similar vehicles with more than 13 seats (HSN 8702) are treated on par with goods transport vehicles. ITC is allowed on the vehicle as well as on its insurance, servicing, and repairs. This is a common relief for fleet operators and transport companies.

Passenger Vehicles with Seating Capacity up to 13 Persons – Mostly Blocked

This is the most commonly discussed category. ITC on cars and smaller passenger vehicles (HSN 8702, 8703) is blocked unless the vehicle is used for one of these specific purposes:

1. Further supply of such vehicles (dealers and manufacturers)
2. Transportation of passengers as a business service (cab aggregators, taxi operators)
3. Providing driving training (recognised driving schools)

For all other purposes – office use, executive transport, director travel – ITC is blocked. The same rule applies to insurance, repairs, and maintenance of these vehicles, with one additional exception: insurers and manufacturers of such vehicles can claim ITC on maintenance costs related to their specific business.

Vessels & Aircraft – Conditional ITC

ITC on vessels (HSN 8901-8903) and aircraft (HSN 8802) is blocked by default but is allowed when these assets are used for:

1. Further supply (shipbuilders, aircraft leasing companies)
2. Transportation of passengers or goods
3. Providing training (aviation academies)

The same conditional logic applies to insurance and maintenance of vessels and aircraft. Manufacturers and general insurers for these categories can also claim ITC on maintenance.

Personal Consumption & General Exclusions

Section 17(5) blocks ITC on goods and services that relate to personal welfare, employee perks, or non-business use. Here is what is specifically excluded:

Important Note: ITC on the above is allowed if the supply is mandatory for the employer under any central or state law, or if it is an integral part of a taxable composite or mixed supply. As clarified in CBIC Circular 172/2022 dated 6 July 2022, ITC on renting or leasing of blocked vehicles is allowed where the underlying use would qualify as an exception under Section 17(5).

Immovable Property & Other Restrictions

Works Contract for Construction – Mostly Blocked

ITC on works contract services (SAC 9954) used for constructing immovable property is blocked to the extent the cost is capitalised in the books of accounts. However, two important exceptions exist:

1. Construction of plant and machinery – ITC is fully allowed
2. Where the recipient is itself providing works contract services (sub-contracting) – ITC is allowed

Goods & Services Used for Own-Account Construction – Mostly Blocked

Similarly, when a registered person procures goods or services and uses them to construct an immovable property on their own account (e.g., building a warehouse), ITC is blocked if the cost is capitalised. The only exception here is when the construction relates to plant and machinery.

CBIC has clarified that ducts and manholes used in an Optical Fiber Cable (OFC) network qualify as plant and machinery. Therefore, ITC on such items is eligible and cannot be denied by treating the OFC network as an immovable structure.

Other Permanently Blocked Items

The following are blocked with no exceptions:

1. Goods that are lost, stolen, destroyed, written off, or disposed of as gifts or free samples
2. Goods and services used for Corporate Social Responsibility (CSR) activities
3. Goods and services used purely for personal consumption
4. ITC of tax paid under Section 74 (demand for suppression, fraud, wilful misstatement) – applicable up to FY 2023-24
5. Goods or services received by a composition scheme taxpayer

Practical Note on Free Samples: CBIC has clarified that Buy One Get One and Buy More Save More promotional schemes do not qualify as gifts. Therefore, no ITC reversal is required for the free item supplied under such schemes.

Practical Tips & Key Takeaways

1. Always verify whether a passenger vehicle is being used for a qualifying purpose before claiming ITC. Misclassification is a common audit trigger.
2. Check if employee benefits (food, health insurance) are mandatory under law – if yes, ITC may be available.
3. For construction projects, identify at the procurement stage whether the asset will be treated as plant and machinery or immovable property, since this determines ITC eligibility.
4. Maintain documentation showing the purpose for which each vehicle or service is used to support ITC claims during audits.
5. Review CBIC circulars regularly – several clarifications have changed how Section 17(5) is applied in practice.

Conclusion

Section 17(5) of the CGST Act covers a wide range of goods and services on which ITC is either fully blocked or conditionally allowed. Motor vehicles for personal or office use, employee perquisites like food and insurance, construction of immovable property, and CSR expenditure are the most common areas where ITC gets denied. However, the law provides meaningful exceptions – particularly for businesses in transportation, manufacturing, insurance, and plant and machinery sectors.

For FY 2026-27, it is essential to map your procurement categories against Section 17(5), verify applicable CBIC circulars, and maintain proper records to defend ITC claims during scrutiny. When in doubt, consult a qualified chartered accountant before filing.

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Frequently Asked Questions (FAQs)

Can I claim ITC on a car purchased for business use?

Generally, no. ITC on cars with a seating capacity of up to 13 persons is blocked unless the vehicle is used for resale, passenger transport services, or driving training. Office use, executive travel, or field staff travel does not qualify.

Is ITC blocked on health insurance for all employees?

ITC on health insurance is blocked unless providing such insurance is mandatory under a law, such as the Employees’ State Insurance Act or a similar statute. Voluntary group health insurance does not qualify for ITC.

Can a real estate developer claim ITC on construction materials?

ITC is blocked on goods and services used for construction of immovable property to the extent capitalised in books. Developers must carefully separate inputs used for taxable outward supply (like commercial leasing) from those used for exempt or blocked activities.

Is ITC available on food provided to employees during overtime?

Only if it is mandatory under law. If food is provided voluntarily by the employer as a perk, ITC remains blocked under Section 17(5)(b).

What happens if I claim blocked ITC by mistake?

Claiming ineligible ITC is treated as excess ITC. You will need to reverse it along with applicable interest. If discovered during an audit, it may also attract penalties under the CGST Act.