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

The Goods and Services Tax (GST) system in India allows businesses to claim Input Tax Credit (ITC) on purchases used in business operations, reducing their tax burden. However, certain goods and services fall under Blocked Credit Under GST, making them ineligible for ITC as per Section 17(5) of the Central Goods and Services Tax (CGST) Act, 2017. Understanding this provision is crucial for businesses to ensure GST compliance and avoid penalties.

Overview of Section 17(5) of the CGST Act

Section 17(5) of CGST Act is a critical provision for every GST taxpayer. It defines a list of expenses on which GST paid cannot be claimed as Input Tax Credit (ITC). Complying with this section is essential for accurate GST return filing and for businesses to avoid legal and financial repercussions.

Ineligible ITC Clauses Under Section 17(5) of the CGST Act

The CGST Act’s Section 17(5) outlines specific clauses that restrict ITC claims on certain expenses. The following are the primary clauses and expenses under this provision:

1. Clauses (a), (aa), and (ab): Conveyance and Transportation
   ITC on motor vehicles used for personal conveyance is generally restricted. However, ITC can be claimed on vehicles used for transporting goods, passenger transport services, or driving schools.
2. Clause (b): Food, Catering, Vehicle Renting, and Health Services
   ITC is blocked for expenses on food, beverages, health services, vehicle renting, and life insurance unless they are mandatory by law or provided as an employment obligation.
3. Clauses (c) and (d): Building Construction
   ITC is restricted on goods and services used in constructing immovable property except for plant and machinery.
4. Clauses (e) and (f): Composition Scheme and Non-Resident Taxpayer
   Businesses under the Composition Scheme or registered as non-resident taxable persons cannot claim ITC on goods or services.
5. Clause (g): Personal Use
   ITC is blocked on goods or services meant for personal consumption rather than business operations.
6. Clause (h): Free Samples and Lost Goods
   ITC cannot be claimed on goods lost, stolen, destroyed, or given as free samples.
7. Clause (i): Fraudulent ITC Claims
   ITC claims from fraudulent practices or unpaid taxes are restricted, requiring reversal if incorrectly claimed.

Consequences of Non-Compliance with Section 17(5)

If ITC is claimed on blocked credit items, it must be reversed to avoid penalties.

Reporting Section 17(5) of CGST Act in GSTR-3B

GSTR-3B includes a dedicated section to report ineligible ITC under Section 17(5). Report ineligible ITC in Table 4(d) under “Ineligible ITC (others)” for transparency and to prevent tax authority scrutiny.

Frequently Asked Questions (FAQs) on Blocked Credit Under Section 17(5) of the CGST Act

1. What is Section 17(5) of the CGST Act?
   It outlines expenses ineligible for ITC, known as “Blocked Credit,” to ensure GST compliance.
2. Is ITC available on motor vehicles?
   No, ITC is generally restricted for motor vehicles used for personal conveyance. Exceptions apply for goods transport, passenger services, and training.
3. Can ITC be claimed on food and beverages?
   No, ITC is blocked for food, beverages, and similar expenses unless mandated by law or as part of employment obligations.
4. How does Section 17(5) apply to construction?
   ITC is restricted on goods and services used in constructing immovable property but allowed for plant and machinery.
5. Is ITC allowed on free samples?
   No, free samples are considered blocked credits under Section 17(5), and ITC cannot be claimed.
6. Can ITC be claimed on life and health insurance?
   ITC is blocked unless the insurance is legally required or provided as an employment obligation.
7. Are non-resident taxpayers eligible for ITC?
   No, non-resident taxable persons cannot claim ITC under Section 17(5), as specified in clause (f).
8. Is ITC claimable on lost or destroyed goods?
   No, ITC is blocked on goods that are lost, stolen, destroyed, or written off.
9. What if ITC is mistakenly claimed on blocked credit?
   Incorrectly claimed ITC must be reversed, and penalties may apply if not corrected promptly.
10. Where can I find a list of ineligible ITC items under Section 17(5)?
    Refer to Section 17(5) of the CGST Act or consult GST resources like GSTR-2B, which shows eligible and ineligible ITC.

For expert assistance with GST filing and blocked credit compliance, contact ApkiReturn at +91 766 515 6000. Stay updated with the latest GST guidelines on www.apkireturn.com to ensure your business remains compliant.