Understanding CGST Act Section 17(5): Blocked Credits & Ineligible Input Tax Credit

Last Updated : Sept. 12, 2023, 12:42 p.m.

The 17(5) section of the 2017 CGST Act, also called blocked credits, is a noteworthy provision for all taxpayers under the Goods and Services Tax. It mentions a list of expenses on which you can claim an Input Tax Credit, but business organisations need help to claim these credits. Section 17(5) is amended to include other items under the ineligible Input Tax Credit- Expenses on Corporate Social Responsibility initiative for corporates. You can read the article if you want to know more about Section 17(5) of CGST Act. The article will evaluate Section 17(5) of the Central Goods and Services Tax Act or ineligible Input Tax Credit with instances.

Section 17(5) of the 2017 CGST Act Overview

Section 17(5) of the 2017 Central Goods and Services Tax Act cites a certain provision under the Goods and Services Tax covering blocked credits or ineligible Input Tax Credits. Taxpayers can not claim the Input Tax Credit while paying the output tax while paying for expenses mentioned in the provision. The provision lists 11 clauses on which you can not claim ITC. Section 17(5) reverses provisions of Section 16(1) and 18(1). Some of these clauses are as follows:

Clause(a, aa, and ab)

You are not allowed to claim ITC on the following.

• Vehicles bought for the purpose of transporting passengers
• Purchase of a ship, aircraft, or vessel
• GST for certain related input services

Clause(b)

Any spending on outdoor catering, food, or beverages is not eligible for ITC. You can’t also claim health services, life insurance, health insurance, beauty treatment, plastic surgery, cosmetic surgery, club membership, and fitness centre expenses.

Clause(c and d)

If you are registered, you can’t claim ITC on the GST paid on the construction of a building or job work expense.

Clause(e and f)

GST paid on purchases is not eligible for ITC for composition taxpayers as their quarterly turnovers are taxable.

Clause(g)

Clause (g) refers to goods and services for personal consumption and not utilised for business purposes. Claiming Input Tax Credit for personal use products and services is unavailable. ITC will only be allowed to a business extent to be used according to the common credits formula, even if the product or service can be used for business or personal reasons.

Clause(h)

The Input Tax Credit is unavailable if the bought products are lost, stolen, damaged, written off or given away as gifts and free samples. In certain scenarios, you can only claim ITC upon buying, but it may later have to be turned in GSTR-3B if the other scenarios occur.

Clause(i)

You can not claim Input Tax Credit for any paid tax because of the following reasons:-

• Non or short tax payment
• Excess tax refund
• Excessive usage of Input Tax Credit, wilful wrong statements, and facts are captured or concealed when the products are seized or confiscated.

Clauses(e) and (f)

Section 10 specifies that a composition taxpayer can not claim an Input Tax Credit on Goods and Services Tax on the products bought because such taxpayers pay tax on periodic turnover. Section 17(5) under the 2017 Central Goods and Services Tax Act states ITC is unavailable for composition taxpayers.

Section 17(5) of CGST Act Reporting

All purchasers and recipients should report to ineligible Input Tax Credits initially claimed to be reverted based on Section 17(5) of CGST Act while filing GSTR-3B for a month or period. You should report such ineligible Input Tax Credit value to be turned in Table 4(B) of GSTR-3B. Ineligible Input Tax Credits under Section 17(5) under the 2017 CGST Act do not require to be reported under Table 4(D) of GSTR-3B. It is sufficient to report such a rate of ineligible Input Tax Credits that should be turned in Table 4(B).

You can compare the list of ineligible Input Tax Credits provided on GSTR-2(B) with the list you have found from account books. The Input Tax Credit portion should be booked for expenses in the account books and not booked individually under Input Tax Credits available for claims. Suppose an ineligible Input Tax Credit is claimed upon books comparison with GSTR-2(B). In that circumstance, you should turn it into GSTR- 3(B) of the upcoming months or periods with interest.

Conclusion

Even though the Input Tax Credit mechanism is among the pillars of the Goods and Services Tax, it is a free credit flow. It eradicates tax cascading. It is unavailable regarding the inward goods and services supply according to Section 17(5) of CGST Act. It is significant to note here that clauses (a) and (b), Section 17(5), were alternates for clauses (a), (aa), (ab) and (b) by the 2018 Central Goods and Services Tax Amendment Act, which is effective from 1st February 2019. Here is hoping that the article guides you to understand when Input Tax Credit can not be claimed and reported under Section 17(5) of the Central Goods and Services Tax Act.

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