FinyaaraBlocked credits under Section 17(5): the full list, with exceptions
Some purchases never carry ITC, even with a valid invoice that appears in your GSTR-2B. Section 17(5) of the CGST Act lists them. Here's the list in plain words, with the exceptions that matter.
The list
| Blocked | Except when |
|---|---|
| Motor vehicles for carrying people, up to 13 seats including the driver, and their insurance, servicing, repair and maintenance | You use them to sell such vehicles, to carry passengers for a fare, or to teach driving. Goods vehicles aren't blocked. |
| Vessels and aircraft, and their insurance, servicing, repair and maintenance | Used to sell them, to carry passengers or goods, or to teach navigation or flying |
| Food and drinks, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery | You sell the same kind of service, or it's part of a taxable composite or mixed supply you make |
| Renting or hiring vehicles, vessels and aircraft that are themselves blocked | Same as for the vehicles above |
| Life and health insurance | You sell the same kind of service |
| Club, health and fitness centre memberships | No exception |
| Travel benefits for employees on vacation, such as leave travel | No exception |
| Works contracts for building immovable property | It's plant and machinery, or you're a works contractor using it for your own works contract |
| Goods and services for building immovable property on your own account, even for business use | It's plant and machinery |
| Purchases from composition dealers | No exception. They issue a bill of supply, not a tax invoice. |
| Goods and services for CSR under Section 135 of the Companies Act | No exception |
| Personal use | No exception |
| Goods lost, stolen, destroyed, written off, or given away as gifts or free samples | No exception |
| Tax paid on demands for fraud or suppression, or on goods detained or confiscated (Sections 74, 129 and 130) | No exception |
There is one more exception for food, catering, beauty and health services, insurance and the other employee items: if a law requires you to provide them to your employees, the credit is allowed. Non-resident taxable persons are also blocked from ITC, except on goods they import.
The construction items have been argued in court over what counts as "plant and machinery". If you build for your business, ask your CA where your case stands.
Why it goes wrong
Blocked purchases often look normal: a valid tax invoice, the right GSTIN, and a line in GSTR-2B. A reconciliation that only matches books to GSTR-2B will happily mark them "matched", and the ITC gets claimed. The question isn't whether the supplier reported it, but what you bought.
Catching it in Tally
The practical signal is the purchase ledger a bill is booked to. Staff welfare, vehicle running, repairs to the car, gifts, club fees: most blocked items live in a handful of ledgers. For each client:
- List the purchase and expense ledgers that carry GST.
- Mark each one: always allowed, always blocked, or needs a look per bill (repairs, for example, which could be to a car or to a delivery van).
- Every month, take the bills on blocked ledgers out of the ITC claim, and check the "needs a look" ones before filing.
Related: GSTR-2B reconciliation with TallyPrime and ITC reversal under Rule 37.
Questions
If a blocked purchase appears in GSTR-2B, can I claim the ITC?
No. GSTR-2B shows what your supplier reported, not whether the credit is allowed. Blocked credits under Section 17(5) can't be claimed even when they appear there.
Is ITC on a company car always blocked?
For motor vehicles carrying up to 13 people (including the driver), yes, unless you use them to sell such vehicles, carry passengers for a fare, or teach driving. Goods vehicles are not blocked.
Where do I show blocked ITC in GSTR-3B?
Show the ITC as it comes from GSTR-2B in Table 4(A), then reverse the blocked amount in Table 4(B)(1), as CBIC's Circular 170/02/2022 explains. Blocked credit reversed there is not claimed back later.
Keep blocked credits out of every client's ITC
In Finyaara, mark each client's purchase ledgers as allowed, blocked or for review. Matched bills on blocked ledgers are flagged before they reach the ITC claim.
General information, not tax advice. Rules change; check anything that matters with your CA.