For most SMEs, input tax credit is the lifeline of GST planning. But Section 17(5) GST blocked ITC FY 2025-26 continues to deny credit on several common business spends, especially those related to cars, employee perks, travel, food, rent and certain office-related costs.

This is where many businesses get into trouble: they assume every GST charged by a vendor is claimable if it is a business expense. That is not always true. Under GST, the test is not only whether the expense is for business, but also whether it falls within the blocked credit list under Section 17(5) of the CGST Act.

For SMEs, the practical question is simple:

This article gives a practical ITC claim checklist for FY 2025-26.

Section 17(5) blocks ITC on specified goods and services, even when they are used in business, unless a clear exception applies. In other words, business use alone is not sufficient where the law specifically denies credit.

The most relevant blocked categories for SMEs are:

For office expenses, the position is different. Many office expenses are creditable if they are not specifically blocked and are supported by proper tax invoices.

Examples of generally eligible office expenses include:

However, even in these areas, the credit must pass the standard GST conditions:

ITC claim checklist for SMEs

Below is a practical checklist for FY 2025-26 before claiming ITC on any expense:

How SMEs should evaluate common expenses

1) Cars and motor vehicles

Cars are one of the most misunderstood ITC areas. In most cases, GST on purchase of a car used for general business is blocked if the vehicle is for transportation of persons with seating capacity up to 13, including the driver.

ITC may be available if:

Also, related expenses such as servicing, insurance and repairs generally follow the fate of the vehicle credit. If the car itself is blocked, credit on associated inputs/services may also be disallowed unless a specific exception applies.

2) Rent

Office rent is generally eligible ITC if the landlord charges GST and all conditions are satisfied. But businesses should be careful where:

If the rented premises are used as office premises for business operations, credit is usually available, subject to normal conditions.

3) Food and canteen expenses

GST on food and beverages, catering and outdoor catering is typically blocked, especially when provided to employees as a benefit.

Important practical point: If canteen facilities are mandated under another law, the credit position may need separate examination. SMEs should not assume automatic eligibility. The nature of arrangement, statutory requirement and documentation matter.

For office lunches, client meals and hospitality expenses, the blocked-credit risk is high. In practice, many businesses choose to treat these as non-creditable unless a clear exception exists.

4) Travel and employee travel benefits

Travel-related expenses are often split into different categories:

ITC on travel benefits extended to employees is generally blocked under Section 17(5). If the expense is an employee perk, it is usually safer to treat GST as blocked.

For business travel where the invoice is in the company name and the expense is not in a blocked category, credit may be available. But if the travel is bundled with employee benefit or is essentially personal in nature, ITC should not be claimed.

5) Office expenses

This is where SMEs can legitimately claim a lot of ITC, provided proper checks are done.

Eligible items often include:

But there are traps:

Step-by-step guidance for claiming ITC safely

Step 1: Map every expense category

Create an internal list of expenses under:

This simple classification prevents wrong claims.

Step 2: Review invoice and purpose

Before booking ITC, ask:

Step 3: Separate blocked and eligible portions

If a vendor bill contains both eligible and blocked components, split them carefully. For example:

Step 4: Align books with GST returns

Your accounts team and GST team should reconcile:

This reconciliation should be done monthly.

Step 5: Build approval controls

For expenses like cars, travel, insurance, and employee welfare, introduce a policy requiring finance or tax review before GST credit is claimed.

Step 6: Keep exception notes on file

Where ITC is claimed under an exception, keep a short note explaining the legal basis and business rationale. This is extremely useful during scrutiny.

Examples

Example 1: Company car purchased for sales team

A company buys a sedan for use by the sales team for client visits. GST is charged on the purchase.

Example 2: Taxi service used for employee travel

An SME avails cab services for employees commuting between office and home.

Example 3: Rent for office premises

A startup takes office space on lease and the landlord charges GST.

Example 4: Client lunch and office catering

A company orders catering for a client event and also provides regular staff lunch.

Example 5: Printer cartridges and internet bills

GST on printer cartridges, broadband and cloud software used at the office.

Common mistakes

Conclusion

For FY 2025-26, Section 17(5) GST blocked ITC remains a critical compliance area for SMEs. The law does not allow a casual “business expense = ITC” approach. Each item must be tested against the blocked list, the exceptions, the invoice, the use, and the documentation.

A practical ITC claim checklist helps businesses avoid wrong claims on cars, rent, food, travel and office expenses while maximising eligible credit on genuine business costs.

The safest approach is simple: