GST Input tax credit

Blocked input tax credit under GST

Some purchases do not give you input tax credit even when the bill is perfect. The list is in section 17(5) of the CGST Act, and knowing it saves you from claims that are reversed later with interest.

Updated 2026-11-054 min read

Who this is for

GST-registered traders
Manufacturers
Accountants and CAs
Business owners buying vehicles
Firms building a shop or godown

On this page 10

What blocked credit means

Normally, GST on business purchases is recovered as input tax credit. For items on the blocked list, the GST becomes part of your cost. You still pay it to the supplier; you just cannot set it off against your output tax. In the books, the GST is added to the expense or the asset value.

The main blocked items

Item	Main exceptions
Motor vehicles for transporting people, with seating up to 13 including the driver	Dealers reselling them, taxi and passenger transport businesses, driving schools
Insurance, repair and servicing of such vehicles	Same exceptions as the vehicles; also insurers and manufacturers
Food and beverages, outdoor catering, beauty treatment, health services, cosmetic surgery	Where you sell the same kind of service, or the law requires you to provide it to employees
Membership of clubs, health and fitness centres	None in general
Rent-a-cab, life insurance, health insurance	Where the law makes it compulsory for employers, or you are in the same line of business
Travel benefits to employees on vacation, such as leave travel	None in general
Works contract and goods or services for building your own immovable property	Plant and machinery; builders using it for further works contract supply
Goods lost, stolen, destroyed, written off, or given as gifts or free samples	None

Also blocked: tax paid under the composition scheme, purchases for personal use, purchases by non-resident taxable persons (except imports), and tax paid after detection of fraud or on goods seized and confiscated.

Worked examples

Owner's car. A Ludhiana manufacturer buys a sedan for the director for ₹15,00,000 plus GST. The GST (and any compensation cess, where it applies) is not claimable. Capitalise the car at the full amount including GST and claim depreciation under income tax.

Delivery van. The same business buys a goods carrier for ₹8,00,000 plus ₹1,44,000 GST at 18%. Vehicles for transporting goods are not blocked, so ₹1,44,000 is claimable.

Diwali gifts. A distributor buys 100 dry-fruit boxes at ₹1,000 plus GST to give dealers free. Gifts are blocked, so the GST is cost. If the boxes were bought for stock and later given away, the ITC already claimed on them must be reversed. More in GST on free samples and gifts.

Staff lunch. A factory provides meals to workers. If a law applicable to the factory requires the canteen, the credit can be claimed; if it is a voluntary perk, it is blocked.

Construction: the area that causes most disputes

GST on cement, steel, contractor bills and other inputs for building your own shop, office or warehouse is blocked, even if the building is used for taxable business. Repairs that are capitalised in the books also fall in this net. The exception is plant and machinery, meaning apparatus, equipment and machinery fixed to earth by foundation or structural support for making taxable supplies. Land, buildings, civil structures and pipelines laid outside the factory premises are excluded from that exception.

Courts and the law have gone back and forth on how far this goes, and the wording has been amended. If you are building commercial property, get specific advice before claiming any ITC.

How to handle blocked credit in practice

Mark blocked expense ledgers in your accounting software so GST on them is not taken to the ITC ledger, for example "Staff welfare", "Vehicle running - car", "Club fees".
If a blocked bill appears in your GSTR-2B, do not claim it; or claim it and show it as reversed in Table 4B of GSTR-3B, as your accountant prefers.
For goods taken from stock as samples, gifts, or written off as damaged, pass a journal entry reversing the ITC in the month it happens.
Review the expense ledgers every quarter for anything booked with GST credit that should not have been.

Common mistakes: claiming GST on hotel stays with meals as one bill (the room may be eligible, the food is not), claiming on mobile handsets given to family members, and claiming on furniture for the owner's home bought in the company name.

This is general information, not tax advice.

Seeing it in your books with Cashflow OS

Cashflow OS shows your TallyPrime expense ledgers and reports on the phone, including expenses by ledger and the Day Book, so the owner can look at what was booked under vehicles, staff welfare or gifts during the month. That makes it easier to ask the accountant whether GST on those entries was claimed. The GSTR-3B view prepared from Tally shows ITC as booked; the decision on eligibility stays with you and your CA.

Avoid these

Common mistakes

MistakeClaiming GST on the director's car
Do this instead
Cars carrying up to 13 people are blocked unless you deal in cars, carry passengers or run a driving school. Add the GST to the car's cost.
MistakeTaking credit on Diwali gifts and free samples
Do this instead
Gifts and free samples are blocked. If the goods came from stock on which credit was claimed, reverse that credit in the month they go out.
MistakeClaiming one combined hotel bill with room and food
Do this instead
Ask the hotel to bill the room and the food separately. Food and beverages are blocked; business accommodation generally is not.
MistakeClaiming credit on cement and steel for your own building
Do this instead
Inputs for building your own immovable property are blocked, except plant and machinery. Take specific advice before claiming anything here.

Keep handy

Checklist

Blocked input tax credit under GST — 7 checks. Tick them as you go.

Mark expense ledgers such as staff welfare, car running and club fees as no-credit
Check blocked bills appearing in GSTR-2B before claiming ITC in GSTR-3B
Reverse ITC on stock given away as gifts, samples or written off
Capitalise passenger cars at full cost including GST
Get hotel, travel and canteen bills split by service where possible
Review vehicle, repair and construction ledgers every quarter
Keep a note of the legal requirement where you claim credit on staff food or insurance

In Cashflow OS

How Cashflow OS helps

Cashflow OS puts your TallyPrime books on every phone in the team. Where it fits this topic:

See what was booked under each expense

Expense ledgers and the Day Book from TallyPrime sync to the phone, so the owner can check what went into car running, staff welfare or gifts this month.

See Financial reports from Tally

Look at ITC in the GSTR-3B view

The GSTR-3B view prepared from Tally shows input tax as booked, so you can raise doubtful items with your CA before filing. Eligibility is still your and your CA's decision.

See GST reports from your Tally data

Questions people ask

Can I claim GST on a car used only for business?

Generally no. Cars for transporting people with up to 13 seats are blocked unless you are in the business of selling cars, transporting passengers or training drivers.

Is GST on a truck or delivery van blocked?

No. Vehicles for transporting goods are not on the blocked list, so ITC is available if the other conditions are met.

Is GST on hotel stays blocked?

Accommodation for business travel is not on the blocked list, but food and beverages are. Ask the hotel to bill the room and food separately.

What if I already claimed blocked credit?

Reverse it in the next GSTR-3B. Interest may apply if the credit was used to pay tax. Speak to your CA about the period involved.

Is GST on a mobile phone for business blocked?

A phone used for business is not on the blocked list, so credit is generally available. Phones bought in the company name for family or personal use are not business purchases and should not be claimed.

Can I claim GST on machinery fixed to a foundation?

Yes, plant and machinery is an exception to the construction block, even if fixed to earth. Land, buildings, civil structures and pipelines outside the factory are not covered by that exception.

Is GST on employee health insurance blocked?

Generally yes, unless a law makes it compulsory for the employer to provide it, or you are in the insurance business yourself. Check your case with your CA.

Where does blocked GST go in the books?

Add it to the expense or the asset value instead of the input tax ledger. For an asset like a car, the full cost including GST is capitalised and depreciated.

This page is general information for Indian businesses, not tax, legal or financial advice. Rules and rates change — check the official portals or your CA before acting.