Blocked Credit Under Section 17(5) of the CGST Act

About

GST has been introduced in India with the motive of “One Nation One Tax” by providing free flow of credits and eliminating cascading effect in various indirect taxes and simplifying the tax structure.

One of the most important reasons for introducing GST in India was the Input Tax Credit, but ITC is not available in every case. There are certain supplies mentioned under section 17(5) of CGST Act where input tax credit under GST is not available. These supplies are also termed as “Blocked Credit”. Now, let’s understand each case and exceptions to these in simple terms -

Nature of Cases where ITC is not available.

➤Motor vehicles and other conveyances  

ITC is not available for motor vehicles for transportation of people having approved seating capacity of not more than 13 persons including the driver including leasing, renting or hiring thereof.

Exceptions :

ITC is available and not blocked when used for :

1. Further Supply of Vehicles

2. Transportation of passenger (transport Agency)

3. For imparting Training Classes

Services of general insurance, servicing, repair and maintenance of motor vehicles for transportation of people having approved seating capacity of not more than 13 persons (including the driver)

ITC would further be admissible for leasing, renting or hiring of motor vehicles when such motor vehicles are used for above said purposes or where the recipient is engaged in the manufacture of such motor vehicles or in the supply of general insurance services in respect of such motor vehicles insured by him.

➤ For Vessels and Aircraft

Vessels and Aircraft including leasing, renting or hiring thereof.

Services of general insurance, servicing, repair, and maintenance of aforesaid vessels and aircrafts.

ITC would be admissible for leasing, renting or hiring of vessels or aircraft when such vessels or aircraft are used for above said purposes or where the recipient is engaged in the manufacture of such vessels or aircraft or in the supply of general insurance services in respect of such vessels or aircraft insured by him.

Other Supplies on which ITC shall not be available

ITC will not be available for Goods/ services provided in relation to:

➤ Food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, except when it is used for making outward taxable supply of the same category of services or an element of mixed or composite supply

➤ Membership of a club, health and fitness center;

➤  Rent-a-cab, life insurance, health insurance.

Exeptions

• Where it is obligatory for an employer under any law

• It is used for making outward taxable supply of the same category of services or an element of mixed or composite supply.

➤ Travel benefits extended to employees on vacation such as leave or home travel concession;

Exception

ITC in respect of such goods or services shall be available, where it is obligatory for an employer to provide the same to its employees under any law for the time being in force.

➤ Works contract services when supplied for construction of immovable property (other than plant & machinery), except where it is an input service for further supply of works contract.

➤ Goods/services received by a taxable person for construction of immovable property on his own account, other than plant & machinery, even when used in course or furtherance of business.

➤ Goods and/or services on which tax has been paid under composition scheme.

➤  Goods and/or services used for private or personal consumption.

➤ Goods which have been lost, destroyed, written off, stolen or disposed of by way of gift or a free sample.

Goods written off in the books of account either as a raw material, semi finished goods or finished goods, then ITC of inputs and input services used for manufacturing is not available. Further, ITC needs to be reversed at the time when goods written off in the books of accounts.

➤ Any tax paid due to short payment on account of fraud, suppression, mis-declaration, seizure, detention.

➤ Any Supplies made by a person who is a Non-Resident Taxable Person.

• Exception:

ITC is available on any goods imported by him.