Section 17 – Apportionment of Credit and Blocked Credits
Sub-section (1): Business and Non-Business Use
When goods or services are used partly for business and partly for other purposes, ITC shall be restricted to the portion attributable to business use only.
Sub-section (2): Taxable vs Exempt Supplies
When goods or services are used:
- Partly for taxable supplies (including zero-rated supplies), and
- Partly for exempt supplies under CGST or IGST Acts,
Then, ITC shall be restricted to the portion used for taxable and zero-rated supplies.
Sub-section (3): Value of Exempt Supplies
The value of exempt supplies for apportionment under sub-section (2) shall be as prescribed, and shall include:
- Supplies on which the recipient pays tax under reverse charge,
- Transactions in securities,
- Sale of land, and
- Sale of building, subject to clause (b) of para 5 of Schedule II.
Explanation to Sub-section (3):
The value of exempt supply shall not include activities listed in Schedule III, except:
(i) Activities under para 5 of Schedule III, and
(ii) Activities as may be prescribed under clause (a) of para 8 of Schedule III.
Sub-section (4): Option for Banks and NBFCs
A banking company, financial institution, or NBFC providing services like deposits, loans, or advances may:
- Either comply with sub-section (2), or
Claim 50% of the eligible ITC each month on inputs, capital goods, and input services. The rest shall lapse.
Provisos:
- Once this option is exercised, it cannot be withdrawn during the financial year.
- The 50% restriction does not apply to inter-branch supplies between registered persons having the same PAN.
Sub-section (5): Blocked Credits
Notwithstanding Section 16(1) and 18(1), no ITC is allowed on the following:
Clause (a): Motor Vehicles
Motor vehicles (seating ≤ 13 including driver), except when used for:
- Further supply of such vehicles,
- Transportation of passengers,
- Training on driving such vehicles.
Clause (aa): Vessels and Aircraft
Vessels and aircraft, except when used for:
(i) Taxable supplies such as:
(A) Further supply of vessels or aircraft,
(B) Passenger transport,
(C) Navigation or flying training.
(ii) Transportation of goods.
Clause (ab): Insurance & Repairs for Vehicles/Vessels/Aircraft
General insurance, servicing, repair & maintenance of the vehicles/vessels/aircraft in (a) and (aa), except when:
(i) Used as per (a)/(aa),
(ii) Received by a person:
(I) Manufacturing such vehicles/vessels/aircraft,
(II) Supplying insurance services for such vehicles/vessels/aircraft.
Clause (b): Specified Goods/Services
The following goods/services, except when used for outward supply of same category or as part of a taxable composite/mixed supply:
(i) Food & beverages, outdoor catering, beauty treatment, health services, cosmetic/plastic surgery, leasing/hiring of motor vehicles, vessels, aircraft (as per a/aa), life/health insurance.
(ii) Membership of clubs, health & fitness centres.
(iii) Travel benefits to employees on vacation (e.g., LTC, home travel).
Exception: Allowed if employer is legally obligated to provide under any law.
Clause (c): Works Contract Services
ITC on works contract services for construction of immovable property (excluding plant/machinery), except where it’s an input for further works contract service.
Clause (d): Construction on Own Account
ITC on goods/services used for construction of immovable property on own account, even if used for business.
Explanation: “Construction” includes:
- Reconstruction,
- Renovation,
- Additions/alterations,
- Repairs (if capitalized).
Clause (e): Composition Scheme
ITC on goods/services taxed under Section 10 (Composition Scheme).
Clause (f): Non-Resident Taxable Person
ITC on goods/services received by non-resident taxable person, except imports.
Clause (fa): CSR Activities
ITC on goods/services used for Corporate Social Responsibility (CSR) obligations under Section 135 of the Companies Act, 2013.
Clause (g): Personal Consumption
ITC on goods/services used for personal consumption.
Clause (h): Lost, Stolen, Gifted, or Sampled Goods
ITC on goods that are:
- Lost,
- Stolen,
- Destroyed,
- Written off,
- Given as gifts or free samples.
Clause (i): Tax Paid under Section 74
ITC of tax paid under Section 74 for any period up to FY 2023–24.
Sub-section (6): Attribution Rules
The Government may prescribe the manner in which credit under sub-sections (1) and (2) is to be attributed to business/exempt use.
Explanation – Definition of Plant and Machinery
“Plant and Machinery” includes:
- Apparatus, equipment, and machinery fixed to earth via foundation or structural support,
- Used for outward supply of goods/services.
Excludes:
- Land and buildings or other civil structures,
- Telecom towers,
- Pipelines laid outside factory premises.
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