Answer By law4u team
Under Indian GST law, the concept of Input Tax Credit (ITC) allows a business to claim credit for the tax paid on purchases used for business purposes. However, the Central Goods and Services Tax Act 2017 (CGST Act), particularly Section 17(5), clearly specifies certain expenses on which ITC is not allowed, even if they are used in the course of business. These are commonly called “blocked credits.” One major category where ITC is not allowed is related to motor vehicles. Credit on purchase, maintenance, or running of motor vehicles is generally not permitted when they are used for personal or general business transportation. However, there are exceptions—such as when the vehicle is used for transportation of goods, passenger transport services, or training purposes like driving schools. Outside these specific uses, ITC cannot be claimed on such expenses. Another important restriction applies to expenses related to food and beverages, outdoor catering, beauty treatment, health services, cosmetic procedures, and similar personal consumption services. ITC on these is not allowed because they are considered personal in nature. However, if a business is itself engaged in providing the same category of service (for example, a catering business), then ITC may be allowed. Expenses on club memberships, gym fees, and recreational facilities are also blocked. Similarly, ITC is not allowed on travel benefits extended to employees, such as leave travel concession (LTC) or vacation-related expenses. These are seen as employee welfare or personal benefits rather than core business inputs. Works contract services for construction of immovable property (other than plant and machinery) are another major area where ITC is disallowed. If a company is constructing a building or office for its own use, it cannot claim ITC on materials and services used for that construction. Likewise, goods or services used for construction of immovable property on one’s own account are also not eligible for ITC. ITC is also not available on goods or services used for personal consumption, or where goods are lost, stolen, destroyed, written off, or given away as gifts or free samples. Additionally, if a taxpayer opts for the composition scheme under GST, they are not allowed to claim ITC at all. Another restriction is where tax has been paid due to fraud, willful misstatement, or suppression of facts—ITC cannot be claimed in such cases. Also, ITC cannot be claimed if the conditions for claiming it (like possession of a valid tax invoice, receipt of goods/services, and filing of returns) are not fulfilled. In summary, while ITC is a beneficial mechanism under GST, the law specifically blocks credit on certain categories like personal expenses, employee benefits, construction of immovable property, and specific restricted items. Businesses must carefully review these restrictions to ensure compliance and avoid wrongful claims.
