Section 17(5) of CGST Act

Payment of Goods and Services Tax (GST) applies to various transactions. For businesses, the prime benefit is that GST paid can be claimed for input credit. However, all businesses need to be aware of the situations where GST cannot be claimed.

Here, we will take a close look at Section 17(5) of the CGST Act, which is also known as the blocked input credits under GST. If you are a regular taxpayer, it is essential to understand this section in detail. This post explains the categories of blocked credit under GST for which the input tax credit cannot be claimed.

What is Section 17(5) of GST?

Section 17(5) deals with blocked credit under GST. Blocked credit refers to an input tax credit that a taxpayer is not allowed to claim. This section highlights a list of purchases where GST is paid, but the business cannot claim these as Input Tax Credit (ITC). 

Meaning of Input Tax Credit

Input Tax Credit, or ITC, stands for the Goods and Services Tax that is paid by a taxable person on any purchase of goods or services that is used or would be used for the business. The Input Tax Credit (ITC) value can only be deducted from the GST payable on sales by the taxable person after certain conditions are met.

When is Input Tax Credit not Available?

Here are the categories of blocked credit under GST for which the input tax credit cannot be claimed:

•  Clauses (a) Section 17(5) of CGST Act

ITC claims cannot be availed of on GST paid for the purchase of aircraft, ships, and aquatic vessels. ITC can, however, be claimed if the buyer is engaged in any of the following businesses:

• Goods transportation services through trucks, tillers, and tractors 
• Resale of ships, aircraft, and aquatic vessels 
• Aircraft services, cruise services, passenger transportation services, and boat rental services 
• Training schools for flying aircraft and navigation of ships. 

• Clauses (aa) Section 17(5) of CGST Act

ITC cannot be claimed for insurance purchases or repairs when servicing cabs, minibuses, tempos, ships, or aircraft. However, ITC can be availed of if the buyer is engaged in the following businesses:

• Manufacture of modes of transport
• Insurance companies that sell general insurance to the modes of transport mentioned above.  

• Clauses (b) Section 17(5) of CGST Act

ITC can't be claimed on the following:

• Expenses related to employee leave or home travel concessions during vacation periods 
• Expenses on outdoor beverages, food, and catering
• Expenses incurred on health centres, fitness centres, and club memberships 
• Life insurance and health insurance 
• Renting and leasing of aircraft, motor vehicles, and vessels, such as boats and ships 
• Cost of cosmetic surgeries, plastic surgeries, beauty treatments, and health services. 

The exceptions under this clause are as follows:

• Composite or mixed sale with other goods 
• When there is a need to offer goods and services to employees for legal compliance 
• The resale of the same goods and services. 

• Clauses (c) and (d) Section 17(5) of CGST Act

If you are registered for GST, you can claim a tax credit for the GST you paid on the construction of a building. This could be for commercial or residential buildings and also includes the cost of materials used for fixing or renovating a building, even if it is taken as an asset. 

If you are a construction company promoter, builder, or other businessperson, when selling these buildings after construction, you could still claim a tax credit on the expenses you incurred. You could also get a tax credit for buying or building plants and machinery. 

•  Clauses (e) and (f) Section 17(5) of CGST Act

Section 10 restricts a specific category of taxpayers; it does not allow them to claim input tax credits on GST paid for purchases. According to this section, certain taxable persons cannot avail themselves of ITC, even when they supply goods or services. For non-residents who are taxable, advance tax deposits are needed. They could get ITC for integrated GST paid on imported goods but are not eligible to claim ITC for any other domestic purchases.     

• Clauses (g) Section 17(5) of CGST Act

ITC cannot be claimed on goods purchased and used for personal needs. However, if the goods bought are partly used for personal needs and partly for business use, then ITC will be allowed for the goods or services used for business needs. 

• Clauses (h) Section 17(5) of CGST Act

ITC cannot be claimed when the goods are lost, written off, stolen, damaged, or given away. 

• Clauses (i) Section 17(5) of CGST Act

ITC cannot be claimed in the following instances:

• Overpayment of tax refunds 
• Willful misstatement, confiscation, seizure of goods, and suppression of facts 
• Unlawful uses or fraudulent acquisition of excessive ITC
• Previous cases of non-payment or insufficient tax payment.