A staff Diwali party or client dinner involves food, a venue, decorations, entertainment and often a gift on the way out. Each element has a different ITC answer, and the first one is the strictest.
The blocking rule
Section 17(5)(b)(i) of the CGST Act blocks ITC on food and beverages, outdoor catering, beauty treatment, health services and cosmetic and plastic surgery. Two exceptions apply:
- the supply is used to make an outward supply of the same category, or as an element of a taxable composite or mixed supply (for example, a restaurant or caterer)
- the employer is obliged by law to provide it, for example a canteen under the Factories Act
A staff party is neither. The catering and food bills are therefore blocked.
Element by element
| Party cost | ITC | Why |
|---|---|---|
| Food, beverages, catering | Blocked | Section 17(5)(b)(i) |
| Gifts, hampers, lucky-draw prizes | Blocked | Section 17(5)(h) |
| Venue hire | Arguable | Not specifically blocked, but needs business nexus. If food and venue are billed as one banquet package, the block can reach the whole bill |
| Decorations and lighting | Arguable | Depends on business use and documentation |
| Entertainment, DJ, event management | Arguable | Not named in the blocked list, but the business purpose test applies |
Section 16(1) allows ITC only for inputs used in the course or furtherance of business. A purely social employee event is weak on that test. A client or dealer meet with a clear commercial purpose is stronger, though the food and gifts remain blocked either way.
Employee perks and GST
CBIC’s Circular 172/04/2022-GST clarified that perks given under the employment contract are not a supply. That deals with output GST. It does not unblock ITC for the blocked categories.
What the 57th GST Council changed
Its 8 October 2026 recommendations on blocked credit, as reported, cover items such as employee insurance, telecom towers, pipelines and free samples. Nothing I reviewed changes the food and beverages block. They are recommendations in any case, so don’t plan on them.
Income tax: A separate question
A GST credit denied is not the same as an expense disallowed. Employee welfare and business promotion spend is generally deductible if it is wholly and exclusively for business, and the blocked GST becomes part of the cost. Meals and refreshments at employer-organised events also interact with the perquisite valuation rules, where the meal threshold under the Income-tax Rules, 2026 has risen to ₹200. Withholding applies to caterers and event managers, and cash payments above the prescribed limit risk disallowance.
Practical steps
- Ask for separate invoices for food, venue, entertainment and decoration, so a claim on the arguable items isn’t contaminated by the blocked ones.
- Record the business purpose , for example the invitation list and agenda for client events.
- Don’t claim ITC on food, catering or gifts. Reverse it if already claimed.
- Keep employee parties and client events apart in the books.
- Brief the team before the festive season so invoices arrive in the right shape.
Bottom line: The party is deductible, but most of the GST is not recoverable. Claim ITC only on the items with a defensible business link, and keep the paperwork to prove it.
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