Input Tax Credit (ITC) Under GST: Eligibility, Conditions, Blocked Credits, Reversals and Matching

Input tax credit (ITC) is the heart of GST. It lets a business deduct the GST it paid on purchases from the GST it collects on sales, so that tax is paid only on the value added. Done correctly it lowers your tax outflow. Done carelessly, it triggers notices, interest and denial of credit. This guide explains the rules in plain language.

Fees, forms and procedures change often. Treat the figures here as indicative and confirm them on the official government or bank website before you act.

The basic idea

Suppose you sell goods for ₹1,00,000 plus 18% GST, collecting ₹18,000. You bought raw material worth ₹60,000 plus ₹10,800 GST. Your GST payable is ₹18,000 minus ₹10,800 = ₹7,200. Without ITC, you would pay ₹18,000. Use the GST calculator to compute tax on any amount.

Conditions to claim ITC (section 16)

1. You are a registered person, and the purchase is for business use.
2. You hold a valid tax invoice or debit note.
3. You have received the goods or services.
4. The supplier has filed their return and paid the tax, and the credit appears in your GSTR-2B.
5. You have filed your own GSTR-3B.
6. You have paid the supplier within 180 days of the invoice date, failing which the ITC must be reversed, with interest, and can be re-claimed after payment.

Time limit

ITC for an invoice must be claimed by the earlier of 30 November following the end of the financial year to which the invoice relates, or the date of filing the annual return. Credit not claimed by then is lost, so reconcile regularly. Rules are amended by notification, so check the current position.

Matching with GSTR-2B

GSTR-2B is an auto-generated statement of the credit available to you each month, based on suppliers' returns. Compare it with your purchase register every month. Claim credit only for invoices that appear there, with limited exceptions. Follow up with suppliers whose invoices are missing, and track them in a list until resolved.

Blocked credits (section 17(5))

Situations needing reversal

• Non-payment to suppliers within 180 days.
• Goods used partly for exempt or non-business purposes, requiring proportionate reversal.
• Credit notes issued by the supplier reducing the original value.
• Inputs written off or lost, or capital goods sold.

Composition dealers and exempt supplies

Businesses under the composition scheme cannot claim ITC. Those making only exempt supplies cannot claim it, and those making both taxable and exempt supplies must claim only the proportion attributable to taxable supplies.

Worked example of a reversal

You bought goods with ₹9,000 GST in April but have not paid the supplier by October, which is beyond 180 days. You must reverse ₹9,000 in your GSTR-3B and pay interest at the prescribed rate for the period. When you pay later, you can claim it again. Estimate penalties with the GST late fee calculator.

Good record-keeping

• Verify your supplier's GSTIN with the GST number validator, and read GSTIN verification.
• Insist on proper tax invoices with correct GSTIN, HSN, place of supply and tax rates.
• Use accounting software to tag invoices as eligible or ineligible.
• Pay suppliers through banking channels and keep proof.

Common mistakes

• Claiming ITC on invoices that are not in GSTR-2B.
• Claiming blocked credits.
• Ignoring the 180-day rule.
• Using the wrong GSTIN or state on purchases.
• Missing amendments, credit notes and annual reconciliation.

Learn about filing in the GST return guide. For tax computation basics, see GST calculation.

A monthly ITC routine that works

Set a fixed day after GSTR-2B is generated, usually the 14th, to run your reconciliation. Download the statement, match it line by line against your purchase register, and sort every difference into one of four buckets: supplier has not filed, invoice date or GSTIN mismatch, ineligible credit, and timing difference that will resolve next month. Email suppliers in the first bucket the same day, because a delayed filing by a vendor can push your credit into a later period and distort your cash flow. Keep the reconciliation file for every month, since officers asking about a particular invoice years later will expect you to show how you treated it. Businesses that skip this routine usually discover mismatches only during a notice, when interest and penalties are already running.

Frequently asked questions

What is input tax credit?

The GST you paid on business purchases, which you can set off against your output GST.

What is GSTR-2B?

An auto-generated statement of ITC available to you based on suppliers' filings.

What is the 180-day rule?

If you do not pay a supplier within 180 days, you must reverse the ITC and re-claim it after payment.

Which credits are blocked?

Items such as personal use goods, club memberships, food and beverages and certain vehicles.

Can composition dealers claim ITC?

No.

By when must I claim ITC?

By 30 November following the financial year of the invoice, or the annual return date if earlier.

Last reviewed 8 November 2026. Rates, limits and rules change, so confirm figures with the official source before you act.