Section 17 – Apportionment of Credit & Blocked Credits
Section 17 of CGST Act, 2017 – Apportionment of Credit and Blocked Credits
Updated on: February 2026 (as amended and applicable till date)
Prepared by: Yours Tax Consultant
1. Bare Act Text – Section 17 (Effective Provisions)
Section 17(1):
Where the goods or services or both are used by the registered person
partly for the purpose of any business
and partly for other purposes,
the amount of credit shall be restricted
to so much of the input tax
as is attributable to the purposes of his business.
Section 17(2):
Where the goods or services or both are used by the registered person
partly for effecting taxable supplies including zero-rated supplies
and partly for effecting exempt supplies,
the amount of credit shall be restricted
to so much of the input tax
as is attributable to the taxable supplies including zero-rated supplies.
Explanation to Section 17(2):
For the purposes of this sub-section,
the expression “exempt supplies” shall include:
- supplies on which the recipient is liable to pay tax under reverse charge
- transactions in securities
- sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building
Section 17(3):
The value of exempt supply under sub-section (2)
shall be such as may be prescribed
and shall include the value of activities or transactions specified in Schedule III,
except those specified in paragraph 5 of the said Schedule.
Section 17(4):
A banking company or a financial institution including a non-banking financial company,
engaged in supplying services by way of accepting deposits, extending loans or advances,
shall have the option to either:
- comply with sub-sections (1) and (2), or
- avail 50% of the eligible input tax credit and reverse the remaining 50%
Section 17(5):
Notwithstanding anything contained in sub-section (1) of section 16
and sub-section (1) of this section,
input tax credit shall not be available in respect of the following, namely:—
-
(a) motor vehicles and conveyances except when used for:
- further supply of such vehicles
- transportation of passengers
- imparting training on driving
- transportation of goods
- (b) food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, except where inward supply is used for making outward taxable supply of the same category or as an element of a composite or mixed supply;
- (c) membership of a club, health and fitness centre;
-
(d) rent-a-cab, life insurance and health insurance,
except where:
- government makes it obligatory for employer, or
- used for making outward taxable supply of same category
- (e) travel benefits extended to employees on vacation such as leave or home travel concession;
- (f) works contract services for construction of immovable property (other than plant and machinery), except where it is an input service for further supply of works contract service;
- (g) goods or services used for construction of immovable property (other than plant and machinery) on own account;
- (h) goods or services on which tax has been paid under section 10 (composition scheme);
- (i) goods or services received by a non-resident taxable person except on goods imported by him;
- (j) goods or services used for personal consumption;
- (k) goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples;
- (l) any tax paid in accordance with sections 74, 129 and 130.
2. Objective of Section 17
Section 17 restricts and regulates the availability of ITC.
It ensures that:
- ITC is allowed only for business purposes
- ITC relating to exempt supplies is reversed
- Certain sensitive or consumption-based items are blocked
3. Apportionment for Business & Non-Business Use – Section 17(1)
Where inputs are used partly for business and partly for non-business purposes, ITC must be proportionately reversed.
Relevant Rule:
4. Apportionment for Taxable & Exempt Supplies – Section 17(2)
ITC attributable to exempt supplies must be reversed.
Important points:
- RCM supplies are treated as exempt supplies
- Securities and sale of land/building included
- Schedule III activities included for reversal
5. Special Option for Banks & Financial Institutions – Section 17(4)
Banks and NBFCs may opt to:
- Reverse ITC proportionately, or
- Avail 50% ITC and reverse remaining 50%
This option simplifies compliance.
6. Blocked Credits – Section 17(5)
Section 17(5) overrides Section 16 and blocks ITC even if all conditions are satisfied.
Blocked credits mainly relate to:
- Employee welfare & consumption
- Immovable property construction
- Motor vehicles (with limited exceptions)
- Free samples & gifts
Courts have held that blocked credit provisions must be strictly interpreted.
7. Section 17 Read with Relevant CGST Rules
8. Common Litigation Issues
- ITC on staff welfare expenses
- Reversal on sale of land/building
- Free samples & promotional schemes
- Construction-related ITC
9. Related Provisions
- Section 16 – Eligibility for ITC
- Section 18 – ITC in special circumstances
- Section 49 – ITC utilisation
10. Professional Tip
Section 17 overrides Section 16. Even eligible ITC can become blocked. Always test ITC through Section 17 before availing it.
Disclaimer: This article is prepared based on the CGST Act, CGST Rules, notifications and legal position applicable till date. Future amendments or judicial pronouncements may require revision.
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