Uninterrupted and seamless chain of input tax credit (hereinafter referred to as, “ITC”) is one of the key features of Goods and Services Tax to avoid cascading of taxes, but input tax credit is not available in respect of certain inward supply of goods or services as per Section 17(5) of the CGST Act,2017. It is important to note here that clause (a) and (b) of Section 17(5) were substituted for clauses (a), (aa), (ab) and (b) by CGST (Amendment) Act, 2018 which has been made effective from 01-02-2019.
The updated provisions effective 1st Feb 2019 of Section 17(5) of the CGST Act, 2017 regarding blocked ITC areas under
|Clause of Section 17(5)||Instance of Blocked ITC||Conditions when ITC is available||Remarks|
|(a), b(i) & (ab)||Motor vehicles for transportation of persons having approved seating capacity of not more than 13 persons (including the driver) including leasing, renting or hiring thereof. Services of general insurance, servicing, repair and maintenance of||When such motor vehicles are used for
i) further supply of such vehicles or
ii) transportation of passengers or
iii) imparting training on driving of such motor vehicles.
ITC would further be admissible for leasing, renting or hiring of
Earlier ITC was prohibited for all motor vehicles and now seating capacity criteria has been inserted in new clause.
Further specific prohibition for ITC on services of general insurance, servicing, repair and maintenance of motor vehicles was not there in old clause and in new clause it has specifically been prohibited to avoid disputes in this regard.
|aforesaid motor vehicles||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.|
|(aa) , b(i)) & (ab)||
Vessels and Aircraft including leasing, renting or hiring thereof.
Services of general insurance, servicing, repair and maintenance of aforesaid vessels and aircrafts.
When such Vessels and Aircraft are used for
i) further supply of such Vessels and Aircraft or
ii) transportation of passengers or
iii) imparting training on navigating / flying such vessels / aircraft.
iv) transportation of goods.
ITC would be admissible for leasing, renting or hiring of vessels or aircraft when 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.
|Specific prohibition for ITC on services of general insurance, servicing, repair and maintenance of vessels and aircraft was not there in old clause and in new clause it has specifically been prohibited to avoid disputes in this regard.|
|Supply of food and||ITC would be available when inward supply of|
|b(i)||beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, life insurance and health insurance||goods or services or both of a particular category is used by a registered person for making an outward taxable supply of the same category of goods or services or both or as an element of a taxable composite or mixed supply;||ITC would be admissible where it is obligatory for an employer to provide such supplies to its employees under any law for the time being in force.|
|b(ii)||membership of a club, health and fitness centre;||-|
|b(iii)||travel benefits extended to employees on vacation such as leave or home travel concession;||-|
|(c)||Works contract services when supplied for construction of an immovable property (other than plant and machinery) except where it is an input service for further supply of works contract service;||-||The term “construction” includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalisation, to the said immovable property; Further the expression “plant and machinery” means apparatus, equipment, and machinery fixed to earth by foundation or structural support that are used for making outward supply of goods or services or both and includes such foundation and structural supports but excludes— (i) land, building or any other civil structures; (ii) telecommunication towers; and (iii) pipelines laid outside the factory premises|
|(d)||Goods or services or both received by a taxable person for construction of an immovable property (other than plant or machinery) on his own account including when such goods or services or both are used in the course||-|
|or furtherance of business.|
|(e)||Goods or services or both on which tax has been paid under section 10 i.e. Composition Scheme||-||-|
|(f)||Goods or services or both received by a non-resident taxable person except on goods imported by him;||-||-|
|(g)||Goods or services or both used for personal consumption;||-||ITC is admissible only in respect of supplies taken for business purposes. Thus supplies received for personal purposes are blocked.|
|(h)||Goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples;||-||Such goods being not used for providing taxable supplies , the ITC thereon is blocked u/s 17(5).|
|(i)||Any tax paid in accordance with the provisions of sections 74 (Tax not / short paid due to fraud etc), 129 (Detention , seizure and release of goods and conveyance in transit) and 130 (confiscation of goods or conveyance and levy of penalty).||-||As in such cases tax was not paid with intention to evade tax the ITC thereon has been prohibited in order to penalize such assessee.|
As per above provisions, under the instances of blocked ITC, it is available under specific conditions only. In order to examine eligibility of ITC under above provisions, readers are requested to go through the instances, conditions under which it is available and also refer the remarks.