Ineligible ITC is the input tax credit that Section 17(5) of the CGST Act blocks, however valid the invoice. The main blocks are cars, food, club fees, insurance, construction, CSR spend and gifts.
Each block has exceptions, and several rules changed in 2023, 2024 and 2025. Below: every clause, the exceptions, a worked example and how to reverse credit.
What Is Ineligible ITC Under GST?
Ineligible ITC is credit you cannot claim even though you paid GST on the purchase and hold a valid tax invoice. Section 17(5) lists these items and applies despite Section 16(1), which otherwise gives credit on business purchases.
The list is read clause by clause, and most clauses carry a narrow exception. The table below is the short version.
| Clause | Credit blocked on | Main exception |
|---|---|---|
| (a) | Motor vehicles for carrying persons, 13 seats or fewer | Resale of vehicles, passenger transport, driving training |
| (aa) | Vessels and aircraft | Resale, passenger transport, training, goods transport |
| (ab) | Insurance, servicing and repair of those vehicles | Same exceptions, or by the maker or insurer |
| (b)(i) | Food, outdoor catering, beauty, health, cosmetic surgery, vehicle rental, life and health insurance | Same category supplied outward, or cover the law obliges |
| (b)(ii) | Club, health and fitness centre membership | None |
| (b)(iii) | Leave and home travel concession for employees | None |
| (c) | Works contract services for immovable property | Used for further works contract services |
| (d) | Goods and services to build immovable property on own account | Plant and machinery |
| (e) | Purchases on which composition tax was paid | None |
| (f) | Purchases by a non-resident taxable person | Goods imported by that person |
| (fa) | Goods and services used for CSR | None |
| (g) | Personal consumption | None |
| (h) | Lost, stolen, destroyed, gifted or free sample goods | None |
| (i) | Tax paid under Section 74 for FY 2023-24 and earlier | None |
Work out the GST on a purchase
Add or remove GST at any rate to see how much credit is at stake on an invoice.
Motor Vehicles, Vessels and Aircraft: Clauses (a), (aa) and (ab)
ITC is blocked on a motor vehicle meant to carry persons when its approved seating is 13 or fewer including the driver. A car bought for a director or for staff travel falls here, however often it is used for work.
| Asset | Credit allowed when it is used for | Blocked otherwise |
|---|---|---|
| Motor vehicle, 13 seats or fewer | Further supply of such vehicles, passenger transport, driving training | Yes |
| Bus or van, more than 13 seats | Any business use, subject to Section 16 | Not blocked |
| Goods vehicle | Any business use, subject to Section 16 | Not blocked |
| Vessel or aircraft | Resale, passenger transport, training, goods transport | Yes |
| Insurance, repair, maintenance of these | The same uses, or by the maker or the insurer | Yes |
A car dealer therefore claims credit on cars held for sale, and a driving school claims it on training cars. CBIC Circular 231/25/2024-GST adds that demo vehicles can qualify as further supply, while transport for the dealer's own staff cannot.
The cost of financing a car whose GST you cannot claim is easy to underestimate. The Car Loan Calculator shows the full outflow including the blocked GST.
Food, Club Fees, Insurance and Travel: Clause (b)
Clause (b) blocks credit on food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, vehicle rental, life insurance and health insurance. Credit survives only where you supply the same category outward.
A restaurant buying food to serve customers can claim, while a company catering an office party cannot. The same test applies to a caterer, a beauty salon and an insurer buying inputs of its own category.
Restaurant services at 5% come with no ITC under Notification 46/2017-Central Tax (Rate). The GST rates guide lists the current rates and conditions.
Construction and Works Contracts: Clauses (c) and (d)
ITC is blocked on works contract services and on goods and services used to build an immovable property, unless the property is plant and machinery. This covers a factory shed, an office building and a showroom built on your own account.
Construction includes re-construction, renovation, additions and repairs, to the extent they are capitalised. One exception helps contractors: a works contractor can claim credit on inputs used for a further works contract service.
| Item | Treatment |
|---|---|
| Apparatus, equipment and machinery fixed to earth by foundation or structural support | Plant and machinery |
| The foundation and structural support for it | Plant and machinery |
| Land | Not plant and machinery |
| Buildings and other civil structures | Not plant and machinery |
| Telecommunication towers | Not plant and machinery |
| Pipelines laid outside the factory premises | Not plant and machinery |
On 3 October 2024 the Supreme Court held in Safari Retreats that a building can be a plant on its facts. That could have allowed credit on a building used to earn rent.
The Finance Act 2025 then replaced plant or machinery with plant and machinery in clause (d), deemed from 1 July 2017. A building let out for rent stays blocked on the statute as it now reads, so treat older notes that allow it as superseded.
Other Blocked Credits: Clauses (e) to (i)
The remaining clauses block credit on composition purchases, non-resident purchases, CSR spend, personal use, lost or gifted goods and tax paid after a Section 74 demand. Two of them changed recently and older guides miss both.
| Clause | What is blocked | Recent change |
|---|---|---|
| (e) | Goods and services on which tax was paid under the composition scheme | None |
| (f) | Purchases by a non-resident taxable person, except imported goods | None |
| (fa) | Goods and services used for CSR under Section 135 of the Companies Act | Added from 1 October 2023 |
| (g) | Goods and services used for personal consumption | None |
| (h) | Goods lost, stolen, destroyed, written off, gifted or given as free samples | None |
| (i) | Tax paid under Section 74 for periods up to FY 2023-24 | Rewritten by the Finance (No. 2) Act 2024 |
Clause (i) once covered Sections 74, 129 and 130. It now covers only Section 74 demands up to FY 2023-24, so tax paid after detention or confiscation no longer blocks credit.
Credit on goods used partly for personal use is apportioned and the personal share is blocked. Verify every supplier's GSTIN with the GST number search guide before you rely on their invoice.
Other Conditions That Stop an ITC Claim
Section 17(5) is not the only reason credit fails, since Section 16 and the Rules add conditions of their own. A purchase can clear Section 17(5) and still lose credit on any of these.
| Rule | What it requires | If missed |
|---|---|---|
| Section 16(2) | Tax invoice, receipt of goods or services, tax paid by the supplier, return filed | Credit denied |
| Section 16(4) | Claim by 30 November after the year, or the annual return date if earlier | Credit lapses |
| Rule 37 | Pay the supplier within 180 days of the invoice date | Reverse with interest |
| Rules 42 and 43 | Reverse credit on inputs used for exempt supplies or capital goods | Reverse the share |
Reconcile your claim with the annual return to catch these. The GSTR-9 guide shows where blocked and reversed ITC is reported.
Worked Example: A Month of Purchases
A trader paid Rs 1,43,000 of GST in a month, and Rs 35,000 of it is blocked under Section 17(5). The credit that can be used is Rs 1,08,000.
| Purchase | GST paid | Credit allowed | Clause |
|---|---|---|---|
| Raw materials | Rs 1,08,000 | Rs 1,08,000 | Not blocked |
| Staff party catering | Rs 5,000 | Nil | (b)(i) |
| Director club membership | Rs 9,000 | Nil | (b)(ii) |
| Staff holiday package | Rs 3,000 | Nil | (b)(iii) |
| Capitalised office renovation | Rs 18,000 | Nil | (d) |
| Total | Rs 1,43,000 | Rs 1,08,000 | Rs 35,000 blocked |
With output tax of Rs 2,00,000, the cash payable is Rs 92,000 (Rs 2,00,000 less Rs 1,08,000). Claiming all Rs 1,43,000 would show Rs 57,000, which understates the tax by Rs 35,000.
If that error ran for 3 months before correction, interest at 18% a year is Rs 1,575 (Rs 35,000 x 18% x 3 / 12). The Rs 35,000 of blocked GST stays in the cost of those purchases.
Reversal, Interest and Penalty
Blocked credit is kept out of Table 4(A) of GSTR-3B, and credit already claimed is reversed in Table 4(B)(1), which covers Rules 38, 42 and 43 and Section 17(5). Most Section 17(5) items are not flagged in GSTR-2B, so you classify them from your own books.
Interest under Section 50 runs at 18% a year from the day the wrongly claimed credit was used. A demand can add penalty under Section 73, Section 74A or Section 122, depending on the facts.
Reverse and pay before a notice arrives, since voluntary payment limits the exposure. The GST portal carries the Table 4 layout of GSTR-3B.
Reversing blocked credit you have already claimed takes five steps.
List the blocked purchases
Mark every invoice in the purchase register that falls under a Section 17(5) clause.
Total the credit
Add up the IGST, CGST and SGST claimed on those invoices.
Reverse it in GSTR-3B
Report the amount in Table 4(B)(1) of the next return.
Work out the interest
Charge 18% a year under Section 50 from the day the credit was used.
Pay and keep the working
Pay the interest in cash and file the working with the invoices.
Common Mistakes With Blocked Credit
The most common mistake is claiming credit on every invoice in GSTR-2B without checking what was bought. The portal cannot see how you use a purchase, so the check is yours.
Frequently Asked Questions: Ineligible ITC
Disclaimer: This guide follows Section 17 of the CGST Act, 2017 as shown in the CBIC tax repository and can change by amendment or notification. Confirm the current position on the GST portal, or with a qualified Chartered Accountant, before you claim or reverse credit. This page is general information and not tax advice.