In a push for GST reform, companies across sectors have urged the government to ease restrictions under Section 17(5) of the CGST Act, which currently blocks input tax credit (ITC) on key business expenses. Sources told CNBC-TV18 that these include costs such as hiring or renting vehicles, employee meals, and medical or insurance expenses for staff and their dependents.Business Groups Flag Blocked Credits As Major Cost Burden
Sources said industry bodies have told the government that blocked ITC makes up a significant part of operational costs, especially for sectors like IT/ITES, mining, infrastructure, airports, and heavy industries, where such expenses are seen as essential, not optional.Under Section 17(5) of the GST law, these expenses are treated as “blocked credits” and are not eligible for input tax credit. While the section was introduced to prevent misuse of credits for personal use, companies now argue that its scope is too wide and doesn’t reflect today’s business reality, where employee welfare is key to productivity, safety, and compliance.
What Industry Is SayingSources say the industry has raised four main categories of concern:
Hiring or Renting of Motor Vehicles:
Industries such as IT/ITES, construction, airport services, and remote manufacturing units heavily rely on vehicle hiring for transporting employees and critical goods. Blocking ITC on such services imposes a double tax burden, despite the services being integral to business operations.
Canteen and Food & Beverage Services:
Many companies are mandated under labor laws to run in-house canteens or provide meals, especially in factories and large offices. GST is already paid by the canteen service provider, but companies are denied ITC, even though the expense is business-driven.
Medical and Life Insurance:
Several high-risk sectors like oil & gas, mining, construction, and airport operations voluntarily extend medical and life insurance benefits beyond statutory requirements to their employees and even their families. The industry argues that such insurance is a business necessity, not a personal indulgence.
Coverage for Dependents:
Companies treat employees as assets and often extend benefits to their parents and dependents as a part of retention strategies. The cost of these extended benefits runs high, especially for large employers, but none of it qualifies for ITC under current GST law.
Expert Views
Understanding the constraints this is building for the industry, Saurabh Agarwal, Indirect tax Partner at EY says, “A major pain point for industry today is the blocking of input tax credit (ITC) on critical business expenditures such as hiring or renting vehicles, running canteens and providing food to employees, as well as medical and insurance costs for employees and their dependants. These expenses are not mere perks but critical components of business operations and employee welfare, especially in sectors like IT/ITES, mining, oil & gas, airports, and manufacturing in remote locations, where such costs are substantial and unavoidable to ensure continuity and safety. It is imperative that the government re-evaluates the scope of Section 17(5) of the GST law.”Similarly, Abhishek Jain, Indirect Tax Head & Partner, KPMG, added “Blocked credits on business expenses continue to be a significant cost for industry. The reconsideration to allow credit where such expenses are statutorily mandated is a welcome move and has provided meaningful relief.”Call For ReformIndustry groups are now seeking a re-evaluation of Section 17(5) to allow seamless credit flow for genuine business expenditures. They argue that the existing restrictions not only increase costs but also go against the spirit of GST as a value-added tax system, where tax paid on inputs should ideally be creditable.“The representations are expected to be studied by the GST Policy Wing and may be taken up by the GST Council in an upcoming meeting,” sources said.If accepted, the move could ease tax compliance burdens and unlock significant ITC for companies across sectors, giving a much-needed fillip to ease of doing business.Also Read: GST compliance overhaul from July 2025: What taxpayers must brace for(Edited by : Poonam Behura)First Published: Jul 11, 2025 3:14 PM IST
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