Input Tax credit Under Section 17 (5) Blocked ITC.

ITC in respect of goods that are disposed of by way of gift or free samples is not available. Also, ITC is blocked on lost goods, stolen goods, destroyed goods and goods that are written off. This is because principally, ITC is available only for payment of tax on output supply. 

If no tax is payable on output supply, ITC on inputs/input services/capital goods relating to such output supply is not eligible. Hence, ITC on gifts and free samples is blocked as no tax is payable on its outward supply. In case of lost/destroyed/stolen written off goods also, ITC is not available as these goods cannot be said to have been used for making a taxable supply.

Input Tax Credit is a law which is helping businesses grow-ITC of tax paid on almost every input, input services or capital goods used for supply of taxable goods and/or services is allowed under GST except a small list of items provided u/s 17(5). 

Thus, ITC on such items is not allowed even though the same may qualify as inputs, input services or capital goods and are used in the course or furtherance of business The blocked list of credit covers mainly items of personal consumption, inputs and input services use of which results into formation of an immovable property (except plant and machinery), Telecommunication towers, Pipelines laid Outside the Factory Premises, etc. and taxes paid as a result of detection of evasion of taxes, etc.


ITC is blocked on motor vehicles, vessels and aircrafts with certain exceptions. Further, ITC is also blocked on certain services relating to motor vehicles, vessels and aircrafts namely, general insurance, servicing and repair and maintenance. 

The essential guideline here is that the engine vehicles, airplanes and vessels on which ITC is obstructed, the ITC on administrations of protection, overhauling and fix and support relating to such engine vehicles, vessels and airplanes is additionally impeded. The impeded credits connecting with engine vehicles, vessels,

1. Goods and/or services on which credit is blocked.

• Motor vehicles for transportation of persons with seating capacity ≤ 13 persons (including the driver).
• General insurance, servicing, repair and maintenance relating to:
• Ineligible motor vehicles

• Food and beverages

• Outdoor catering

• Beauty treatment 

• Cosmetic and plastic surgery

• Life insurance and health insurance

• Travel Benefits extended to employees on vacation such as leave or home travel concession.

2. Exceptions to goods and/or services mentioned in which credit is allowed.

• Ineligible motor vehicles when used for any of the following eligible purposes -

•  making further taxable supply of such motor vehicles (e.g. traders of motor vehicles)

•  making taxable supply of transportation of passengers (e.g. travel operator offering transportation services).

• Making taxable supply of imparting training on driving such motor vehicles (e.g. motor driving schools) Supplier of general insurance services in Respect of ineligible motor vehicles, vessels or aircraft insured by him.

One major input service, ITC on which is blocked is input service relating to construction activity like construction of office building, factory building etc. (except in case of persons like builders, developers and contractors who are undertaking construction for others). 

However, ITC is available for routine construction related services like repairs, maintenance, renovation etc. of office and factory building. Thus, broadly, ITC of construction services is not available when the expenses are capitalized in the books of account. Here, it needs to be noted that capitalization of an expense does not depend on whether the taxpayer intends to avail ITC, but on the basis of Accounting Standards and GAAP.

3.    Self-construction of Immovable property section 17(5).

ITC on works contract services availed by a taxpayer, other than a works contractor, for construction of immovable property (other than plant and machinery) is not available. But what happens if a taxpayer procures goods and services and constructs an immovable property, for being used in the course or furtherance of business, without availing services of a works contractor?

FAQ'S

1. Will ITC be allowed in such a case?

Ans -ITC is not allowed on goods and/or services received by a taxable person for construction of an immovable property (other than plant and machinery) on his own account even though such goods and/or services are used in the course or furtherance of business. Consequently, ITC on merchandise as well as administrations utilized in the development of an unfaltering property is obstructed exclusively in those situations where the available individual builds the relentless property for his own utilization regardless of whether the unflinching property being built is utilized in the course or advancement of his business.

4. Inward supplies charged to tax under composition Section 17(5).

A provider enlisted under synthesis conspire can't gather charge from its clients. In this way, such provider issues bill of supply and not an expense receipt. A piece provider pays a lumpsum charge at a predefined rate on its quarterly turnover.

Tax paid on goods and/or services under composition scheme is not available as ITC for the recipient. Since a composition supplier cannot collect any tax on its supplies, from the recipient of its supplies, it is obvious that no ITC can be availed in respect of such supplies by the recipients. Nevertheless, section 17(5) specifically blocks the ITC on inward supplies received by a taxable person from a composition supplier.