📅 Day 23 of 30 · GST Challenge
Apportionment of Credit
& Blocked Credit
Section 17 of the CGST Act — when ITC must be split, restricted or fully blocked. Apportionment formula for mixed-use supplies, Banking/NBFC 50% rule, the complete Blocked Credit list u/s 17(5), and a full worked example with M/s Alpha Enterprises.
Section 17
Apportionment Rule
Blocked Credit 17(5)
17(4) Banking/NBFC
Worked Example
Exempt Supply Scope
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Apportionment & Blocked Credit
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M/s Alpha Enterprises — July 2025
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Why Section 17? — Purpose of Apportionment
Section 17 steps in when goods or services are not exclusively used for taxable business supplies. ITC is only available to the extent that inputs are used in making taxable outward supplies. When there is mixed use, the credit must be apportioned — split between the eligible and ineligible portions.
Business Use
Full ITC eligible — used in course of business
Non-Business Use
No ITC — personal / non-business consumption
Taxable Supplies
ITC available — incl. zero-rated [Sec 17(1)]
Exempt Supplies
No ITC — must apportion and reverse [Sec 17(2)]
Apportionment Rule — The Formula
When inputs are used for both taxable and exempt supplies (mixed use), ITC is restricted to the taxable portion using this formula prescribed under the CGST Rules:
ITC Eligible on Common Inputs (Mixed Use)
Eligible ITC = Total ITC ×
Value of Taxable Supplies
Total Turnover (Taxable + Exempt)
The remaining portion (attributable to exempt supplies) must be reversed and is not available as ITC.
“Value of Exempt Supply” for this purpose includes: RCM Supplies (as recipient), Transactions in Securities, Sale of Land, Sale of Building (subject to Sch II para 5(b)).
“Value of Exempt Supply” for this purpose includes: RCM Supplies (as recipient), Transactions in Securities, Sale of Land, Sale of Building (subject to Sch II para 5(b)).
📌 What is Included in “Exempt Supply” Value?
RCM Supplies (as Recipient)
Transactions in Securities
Sale of Land
Sale of Building (Sch II, para 5(b))
Also includes: Nil-rated supplies and Non-GST supplies for apportionment purposes.
Section 17(4) — Banking / Financial Institutions / NBFC
Banks and financial institutions (including NBFCs) have a special simplified option under Section 17(4) instead of computing apportionment month by month:
🏦 Sec 17(4) — 50% Rule for Banks & NBFCs
- Option to follow Sec 17(2) (normal apportionment) OR
- Avail 50% of eligible ITC every month — rest lapses permanently
- Once chosen, this option is fixed for the entire financial year
- 50% restriction does NOT apply to inter-branch supplies made under the same PAN (between branches of the same bank)
Blocked Credit — Section 17(5) Complete List
Section 17(5) is the Negative List of ITC — items on which ITC is never available regardless of business use. These are absolute blocks with limited exceptions.
Section 17(5)
ITC Not Available — Blocked Credit List
Motor Vehicles (<13 seats incl. driver)
Cars, SUVs, vehicles with seating capacity ≤13. Also: Insurance, servicing, repair & maintenance of such vehicles.
✅ Allowed if: Further supply of vehicles | Passenger transport | Driver training
Vessels & Aircraft
Vessels and aircraft and their insurance, servicing, repair. Blocked for general business use.
✅ Allowed if: Further supply | Passenger transport | Navigation/flying/training | Transport of goods
Food & Beverages / Certain Services & Goods
Outdoor catering, food/beverages, beauty treatment, health services, cosmetic surgery, club memberships, fitness centre.
✅ Allowed if: Same category is an outward taxable supply
Works Contract Services
Works contract services for construction of an immovable property. Blocked — even if used for business.
✅ Allowed if: Plant & Machinery (P&M/C) construction or input service for another works contract
Goods/Services for Construction
Goods or services used in construction of immovable property on own account — even for business purposes.
✅ Allowed if: Plant & Machinery (P&M/C)
Composition Scheme GIS
Goods or services received by a taxable person who opts for the Composition Scheme — no ITC allowed.
No exceptions
NRTP (Non-Resident Taxable Person)
Goods or services received by a Non-Resident Taxable Person — blocked, except goods imported by NRTP.
Except: Goods imported by NRTP
Goods Lost / Free Samples / Personal Consumption
Goods lost, stolen, destroyed, written off, disposed of as gifts or free samples. Also: goods used for personal consumption.
No exceptions
CSR-related Goods & Services
Goods or services used for Corporate Social Responsibility (CSR) obligations — blocked. Tax paid u/s 74 up to FY 2023–24 also blocked.
No exceptions
Worked Example — M/s Alpha Enterprises (July 2025)
M/s Alpha Enterprises is a Regular Taxpayer. Its purchases for July 2025 include a mix of eligible, blocked, and apportionable inputs. The output split: 60% Taxable goods and 40% Exempt goods. Let’s work through each item:
| Purchase Item | Value (₹) | GST (₹) | Purpose | ITC Treatment & Remarks |
|---|---|---|---|---|
| Office Chairs & Tables | 1,00,000 | 18,000 | Office Use | ✅ Eligible Fully eligible — used for business, not blocked |
| Car (5 Seats) | 8,00,000 | 1,20,000 | Director’s personal + office use | 🚫 Blocked Motor Vehicle <13 seats — Blocked u/s 17(5). Mixed purpose doesn’t help — fully blocked. |
| Catering for Client Event | 50,000 | 9,000 | Business hospitality | 🚫 Blocked Outdoor catering — blocked u/s 17(5) unless outward supply is of the same category. Not the case here. |
| Machinery Fixed to Earth | 5,00,000 | 90,000 | Manufacturing | ✅ Eligible Plant & Machinery (CPl and M/c) — eligible. Construction of immovable property exception applies to P&M. |
| Raw Materials | 4,00,000 | 72,000 | 60% Taxable goods, 40% Exempt goods | ⚖️ Apportion Mixed use — apply formula. Eligible = 72,000 × 60% = ₹43,200 Blocked (exempt portion) = ₹28,800 |
| Repair of Company Truck | 20,000 | 3,600 | Used for goods transport | ✅ Eligible Allowed — repair/maintenance of goods transport vehicle is not blocked (only <13 seat motor vehicles blocked) |
| Cement & Steel for Office Building | 2,00,000 | 36,000 | Construction of immovable property (own account) | 🚫 Blocked Goods used for construction of immovable property on own account — blocked u/s 17(5). Not P&M. |
| Goods given as Free Samples | 30,000 | 5,400 | Promotion / marketing | 🚫 Blocked Free samples — explicitly blocked u/s 17(5). No ITC on goods disposed of as free samples/gifts. |
| Total GST on Purchases | — | 3,54,000 | — | Gross ITC before restrictions |
📊 ITC Summary — M/s Alpha Enterprises, July 2025
✅ Fully Eligible ITC
(Office chairs ₹18,000 + Machinery ₹90,000 + Truck repair ₹3,600 + Raw materials apportioned ₹43,200) ₹1,54,800
(Office chairs ₹18,000 + Machinery ₹90,000 + Truck repair ₹3,600 + Raw materials apportioned ₹43,200) ₹1,54,800
🚫 Blocked ITC — Not Available
(Car ₹1,20,000 + Catering ₹9,000 + Cement/Steel ₹36,000 + Free samples ₹5,400 + Raw mat. exempt ₹28,800) ₹1,99,200
(Car ₹1,20,000 + Catering ₹9,000 + Cement/Steel ₹36,000 + Free samples ₹5,400 + Raw mat. exempt ₹28,800) ₹1,99,200
Total GST Paid on Purchases
₹3,54,000
🏦 ITC Claimed (ITC Milegg / Eligible)
₹1,54,800
Master Summary — Exam Ready
🎯 Section 17 — Quick-Fire Points
- Sec 17(1): ITC restricted to extent of use for business — no ITC on non-business/personal use
- Sec 17(2): ITC restricted on common inputs used for both taxable and exempt supplies — apportion using turnover ratio
- Apportionment Formula: Eligible ITC = Total ITC × (Taxable Turnover ÷ Total Turnover)
- Exempt Supply includes: RCM supplies (as recipient), transactions in securities, sale of land, sale of building
- Sec 17(4) Banking/NBFC: 50% ITC every month (rest lapses) OR follow 17(2) — once chosen, fixed for year. 50% rule N/A for inter-branch under same PAN
- Sec 17(5) Blocked List: Motor vehicles <13 seats (+ insurance/repair) | Vessels & aircraft | Food/catering/beauty | Works contract (except P&M) | Construction goods (except P&M) | Composition scheme | NRTP | Free gifts/samples | Personal consumption | CSR | Tax paid u/s 74 up to FY 23–24
- Exceptions to Motor Vehicle block: Further supply of vehicles | Passenger transport | Driver training
- Exceptions to Works Contract/Construction block: Plant & Machinery (P&M)
⚡ Exam Trick — Sec 17(5) Memory Aid
- Motor Vehicles (<13 seats) + Insurance/Repair
- Vessels & Aircraft + Insurance/Repair
- Food, Beverages, Outdoor Catering, Beauty, Health, Club
- Works Contract for Immovable Property
- Construction Goods/Services for own Immovable Property
- Composition Scheme GIS | NRTP | Personal Consumption
- Goods Lost/Stolen/Destroyed/Gifted/Samples | CSR