Blocked Credit refers to the input tax credit (ITC) that a business cannot claim under the Goods and Services Tax (GST) law in India. Simply put, even if you have paid GST on certain purchases or expenses, the law restricts you from using that tax amount as a credit to reduce your GST liability on sales. This means you have to bear the GST paid on those specific goods or services as a cost, without any benefit of offsetting it against your output tax.
In practical terms, Blocked Credit often applies to certain categories like personal expenses, motor vehicles (except when used for business purposes like transportation of goods or passengers), goods used for construction of immovable property (except for plant and machinery), and other specific supplies listed under GST rules. This restriction helps ensure that the input tax credit system is used only for genuine business-related transactions.
For small business owners and first-time entrepreneurs, understanding Blocked Credit is essential for accurate tax compliance and financial planning. It affects how you calculate your net GST payable and manage your expenses. During GST filings, you must correctly identify and exclude blocked credits to avoid errors that could trigger audits or penalties.
For detailed guidance on GST input tax credit rules and other compliance aspects, you may find valuable resources and professional support at FinTax24’s GST solutions page: https://services.fintax24.in/3-gst. This can help you navigate GST regulations effectively and keep your business compliant.