Your GSTR-2B for October 2026 shows ₹5,73,240 of input tax credit. Your books say you can use only ₹3,00,600 of it. The difference is not a portal error. It is the GST paid on a director’s car, its servicing, a staff Diwali dinner, gift boxes for dealers and a new godown shed, and Section 17(5) of the CGST Act says none of that credit can be claimed, even though every bill carries your GSTIN.
The list is short, but it causes a large share of ITC reversals in small businesses because GSTR-2B and GSTR-3B do not filter it out for you. Below: each blocked item with its exceptions, a worked purchase register, and where the reversal goes in GSTR-3B.
What is blocked ITC under Section 17(5)?
Section 16 of the CGST Act sets the general conditions for claiming input tax credit: a valid invoice, goods or services actually received, the supplier’s tax reported, and the purchase used in the course of business. Section 17(5) then overrides Section 16(1) and names specific purchases on which credit is not available at all, whatever the business purpose.
That override is the part people miss. Section 17(5) does not ask whether the purchase helps the business. It asks what the purchase is, and sometimes how it is used. If it is on the list and no exception applies, the GST becomes part of your cost.
Which purchases are blocked under Section 17(5)?
Here is the full list in plain terms, with the exceptions that let credit back in. Clause references are to Section 17(5).
Clause | What is blocked | When credit is still allowed |
|---|---|---|
(a) | Motor vehicles for carrying people, with approved seating of 13 or fewer including the driver | When used for further supply of such vehicles, transport of passengers, or driving training |
(aa) | Vessels and aircraft | Further supply, passenger transport, navigation or flying training, or transport of goods |
(ab) | General insurance, servicing, repair and maintenance of the vehicles in (a) and (aa) | When the vehicle itself qualifies for credit, or for manufacturers and insurers of such vehicles |
(b)(i) | Food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, hiring of blocked vehicles, life and health insurance | When used to make an outward taxable supply of the same category, or as part of a taxable composite or mixed supply |
(b)(ii), (b)(iii) | Club, health and fitness centre memberships; leave or home travel concession for employees | For items in clause (b), when an employer is required by law to provide them |
(c) | Works contract services for building immovable property | Plant and machinery, or when you are a works contractor supplying works contract services onward |
(d) | Goods and services used to construct immovable property on your own account | Plant and machinery |
(e) | Purchases on which tax was paid under the composition scheme | None |
(f) | Purchases by a non-resident taxable person | Goods imported by that person |
(fa) | Goods or services used for CSR obligations under Section 135 of the Companies Act | None |
(g) | Anything used for personal consumption | None |
(h) | Goods lost, stolen, destroyed, written off, or given away as gifts or free samples | None |
(i) | Tax paid under Section 74 (for periods up to FY 2023-24), and under Sections 129 and 130 | None |
The statutory text is on the CBIC GST Acts page. Read the clause itself before deciding a large amount.
Is ITC on a car blocked if it is used only for business?
Yes, in most cases. Clause (a) looks at what the vehicle is, and only three uses rescue it: you sell such vehicles, carry passengers for a fare, or run a driving school. A sales manager’s car or the owner’s SUV stays blocked, however businesslike the use.
Three related points come up every year:
Goods vehicles are not covered. A tempo, pickup or truck used to deliver goods is not a vehicle for carrying persons, so its GST is creditable in the normal way.
Servicing and insurance follow the car. Clause (ab) blocks repair, maintenance and general insurance on a blocked car. If the car itself qualifies (say, a taxi operator’s fleet), these services qualify too.
Hiring a cab is also blocked. Hiring a blocked vehicle sits in clause (b)(i), unless you supply the same service onward.
Can you claim GST on staff food, insurance and Diwali gifts?
Usually not. Food and beverages, outdoor catering, health services, and life and health insurance are blocked under clause (b)(i). Club memberships and leave travel concession are blocked under (b)(ii) and (b)(iii). The exceptions are narrow:
Same-category supply. A caterer buying from a sub-caterer can claim, because the inward supply feeds an outward supply of the same kind.
Legal obligation. Where a law requires the employer to provide the item, such as a canteen that labour law requires a large factory to run, credit is available. Goodwill gestures do not qualify.
Insurance needs a fresh look after the 2025 rate changes. From 22 September 2025, individual life and health insurance policies are exempt from GST, so there is no tax to claim. Group health and group life cover taken by employers is still taxable, and that GST remains blocked unless the cover is legally mandatory for the employees concerned.
Gifts fall under clause (h). Diwali boxes for dealers and free samples at a trade fair are blocked. If you claimed credit on stock and later gave some away, reverse the credit on those units.
Is ITC allowed on construction of an office, shop or godown?
Not on the building. Clause (c) blocks works contract services for constructing immovable property, and clause (d) blocks goods and services you use to construct it on your own account, even when the building is used only for business. “Construction” includes renovation, additions, alterations and repairs to the extent they are capitalised. A repair you expense through the P&L is not caught by this clause.
The exception is plant and machinery: apparatus, equipment and machinery fixed to the earth by a foundation or structural support and used to make outward supplies, along with that foundation. Land, buildings, civil structures, telecom towers and pipelines outside the factory are excluded.
The Supreme Court’s 2024 Safari Retreats judgment had opened a door for credit on buildings that are let out. The Finance Act, 2025 changed the words “plant or machinery” in clause (d) to “plant and machinery” with retrospective effect from 1 July 2017, and added that this applies regardless of any court order. Treat credit on an office, mall or godown building as blocked.
A worked example: one month’s purchase register
Say you run a ceramic tiles dealership in Rajkot. All suppliers are registered and have filed their GSTR-1, so every one of these bills appears in your GSTR-2B for October 2026:
Purchase | Taxable value (₹) | GST on bill (₹) | Treatment |
|---|---|---|---|
Tiles stock from a Morbi manufacturer | 8,40,000 | 1,51,200 | Eligible |
Five-seater car for the director | 9,50,000 | 1,71,000 | Blocked, clause (a) |
First service and insurance on that car | 18,000 | 3,240 | Blocked, clause (ab) |
Diwali dinner for staff | 60,000 | 3,000 | Blocked, clause (b)(i) |
Diwali gift boxes for dealers | 1,20,000 | 14,400 | Blocked, clause (h) |
Tempo for deliveries | 6,20,000 | 1,11,600 | Eligible (goods vehicle) |
Contractor’s bill for the new godown shed | 4,50,000 | 81,000 | Blocked, clause (c) |
Free-standing steel racks for the godown | 2,10,000 | 37,800 | Eligible (movable goods) |
The arithmetic:
Total GST in GSTR-2B: 1,51,200 + 1,71,000 + 3,240 + 3,000 + 14,400 + 1,11,600 + 81,000 + 37,800 = ₹5,73,240
Blocked: 1,71,000 + 3,240 + 3,000 + 14,400 + 81,000 = ₹2,72,640
Eligible: 1,51,200 + 1,11,600 + 37,800 = ₹3,00,600
More than 47% of the month’s credit is blocked. If the accountant files GSTR-3B straight from the auto-filled figures, ₹2,72,640 of ineligible credit goes into the electronic credit ledger. Once that credit is used to pay output tax, the department can demand it back with interest at 18% a year under Section 50(3), plus a penalty.
In the books, the blocked GST is not a separate asset. It is added to the cost of what you bought. The car goes into the fixed asset register at ₹11,21,000 (₹9,50,000 plus ₹1,71,000), and depreciation is worked out on that figure. The dinner and gift boxes go to expense at their gross amounts.
How do you report blocked ITC in GSTR-3B?
GSTR-2B does not know why you bought something, so blocked credit shows as available and is auto-filled into Table 4(A)(5), “All other ITC”. You take it out yourself:
Leave Table 4(A)(5) at the full figure from GSTR-2B, in our example ₹5,73,240.
Enter the blocked amount in Table 4(B)(1), which covers reversals under Rules 38, 42 and 43 and Section 17(5). Here that is ₹2,72,640, split by IGST, CGST and SGST as per the bills.
Check Table 4(C), net ITC available, which should now read ₹3,00,600.
Use Table 4(B)(1) and not 4(B)(2). Table 4(B)(2) is for reversals you may reclaim later, such as suppliers unpaid after 180 days. Blocked credit never comes back. This reporting pattern follows CBIC Circular 170/02/2022-GST.
One more point for anyone using IMS: do not reject a valid supplier invoice just because its credit is blocked for you. The invoice is correct; only your eligibility differs. Accept it in IMS and reverse the credit in GSTR-3B. We explain how IMS actions affect GSTR-2B in our guide to accepting, rejecting or keeping invoices pending in IMS.
Common mistakes we see in client books
Tagging by supplier, not by purchase. A hardware store bill may contain racks (eligible) and cement for the godown floor (blocked). Split the bill line by line.
Forgetting the follow-on bills. The car’s credit gets blocked at purchase, but its servicing, tyres and insurance keep arriving every month and get claimed by default.
Claiming on capitalised repairs. A false ceiling or a new floor in the showroom that you capitalise counts as construction under clause (d).
Planning to reverse at year-end. Interest runs from the date the credit was used, so monthly checks cost less.
Where hisabkitab fits in
Blocked credit is a classification problem, and the only reliable fix is to classify each purchase when it is entered. In hisabkitab’s GST software, purchase bills captured through AI OCR land in the purchase register with their GST split, and the ITC and liability reports show what is going into your return before you file. GSTR-2B AI reconciliation then matches the portal data against your books and flags wrong GSTINs and duplicate invoices, which is the same check described in our piece on catching GST errors before you file.
If your CA reviews the classification, the ledger, day book and GST reports in our bookkeeping software give them purchase-level detail without paper bills.
Frequently asked questions
Is ITC on a car for a sales team blocked?
Yes. A passenger car seating 13 or fewer is blocked under Section 17(5)(a) unless you deal in cars, carry passengers for a fare, or run a driving school. Business use alone does not change that.
Can I claim ITC on a goods carrier or tempo?
Yes. Clause (a) covers only vehicles for transporting persons. A tempo, truck or pickup used to carry goods is creditable under normal Section 16 conditions.
Is GST on employee health insurance claimable?
Individual health policies have been exempt since 22 September 2025, so there is no GST to claim. GST on group health cover is blocked under clause (b)(i) unless a law requires you to provide that cover to your employees.
Where do I show blocked ITC in GSTR-3B?
Keep the full auto-filled amount in Table 4(A)(5) and report the blocked portion in Table 4(B)(1). Net ITC in Table 4(C) is what you can actually use.
Can blocked ITC be claimed later if I sell the asset?
No. Blocked credit is a permanent disallowance. The GST becomes part of the asset’s cost, and it does not come back when the asset is sold.
Start a free trial to see your eligible and blocked ITC before you file, or compare plans.
