Key takeaways
- Input tax credit lets a registered business reduce its GST payable by the GST it has paid on business purchases.
- Credit is allowed only with a valid invoice, actual receipt of goods or services, the supplier's tax paid and the invoice showing in your GSTR-2B.
- Credit for a year must be claimed by 30 November of the next year, or the annual return date if earlier.
- Some credits are blocked by law, such as most motor cars, food and personal-use items.
Input tax credit (ITC) is the heart of GST. It lets a registered business reduce the GST it pays to the government by the GST it has already paid on its business purchases. Used correctly, it prevents tax on tax. Used carelessly, it is the most common reason for GST notices. This guide explains input tax credit under GST in simple terms.
How input tax credit works
Suppose you buy goods for ₹1,00,000 plus ₹18,000 GST, and sell your product for ₹1,50,000 plus ₹27,000 GST. Without credit, you would pay ₹27,000. With credit, you pay only the difference: ₹27,000 minus ₹18,000, which is ₹9,000. The ₹18,000 is your input tax credit.
Who can claim it
Any person registered under GST in the regular scheme can claim credit on goods and services used, or intended to be used, in the course or furtherance of business. Composition taxpayers cannot claim it.
Conditions to claim credit
Under Section 16 of the CGST Act, you can claim credit only if all these conditions are met:
- You hold a valid tax invoice or debit note issued by a registered supplier
- The invoice details have been furnished by the supplier and appear in your GSTR-2B
- You have actually received the goods or services
- The supplier has paid the tax to the government
- You have filed your own return (GSTR-3B)
- You pay the supplier within 180 days of the invoice date; otherwise the credit must be reversed with interest until payment is made
GSTR-2B and the Invoice Management System
Your GSTR-2B is a monthly statement of credit available to you, prepared from invoices your suppliers report. The GST portal's Invoice Management System (IMS) lets you accept, reject or keep pending each invoice your suppliers upload before the statement is finalised. Rejected invoices do not give credit. Check IMS every month, and match it with your purchase register before filing GSTR-3B.
Time limit
Credit on invoices of a financial year must be claimed by 30 November of the following year, or the date you file the annual return for that year, whichever is earlier. After that, the credit is lost.
Credits you cannot claim (blocked credits)
Section 17(5) blocks credit on certain items, even if used in business. The main ones:
- Motor vehicles for transporting up to 13 persons, with exceptions such as vehicles used for further supply, passenger transport or driving training
- Food and beverages, outdoor catering, beauty treatment, health services and cosmetic surgery, except where used to make the same kind of supply or where an employer must provide them by law
- Club memberships and health and fitness centres
- Construction of immovable property on your own account, other than plant and machinery
- Goods or services used for personal consumption
- Goods lost, stolen, destroyed, written off or given away as gifts or free samples
- Tax paid under the composition scheme, and tax paid because of fraud or suppression
Discounts and credit notes: a change from 1 November 2026
From 1 November 2026, a discount given after a sale can reduce the taxable value if the supplier issues a credit note and the buyer reverses the matching input tax credit. Buyers should watch for such credit notes and reverse credit on time, because the supplier's tax reduction depends on it.
Common mistakes
- Claiming credit on invoices that do not appear in GSTR-2B
- Claiming credit twice on the same invoice, or on amended invoices
- Not reversing credit on exempt supplies, personal use or unpaid invoices after 180 days
- Missing the 30 November deadline for last year's invoices
- Buying from suppliers who do not file returns, which blocks your credit
- Taking credit on blocked items such as staff food or company cars
A monthly ITC routine
- Record purchases with GSTINs and invoice numbers.
- Review IMS and accept, reject or keep invoices pending.
- Reconcile GSTR-2B with your books and follow up with suppliers on missing invoices.
- Claim eligible credit in GSTR-3B, and reverse what the rules require.
Read our guide to GSTR-1 and GSTR-3B for the monthly return cycle. Our input tax credit team reconciles your credit every month so you claim everything you are entitled to, and nothing you are not.
This article explains the general GST position as on the date shown. ITC rules are technical and change through notifications; take advice for your specific transactions.
Frequently asked questions
Can a composition taxpayer claim input tax credit?
No. Composition taxpayers pay tax at a fixed rate on turnover and cannot claim input tax credit. Their buyers also cannot claim credit on their supplies.
What happens if I do not pay my supplier within 180 days?
You must reverse the credit claimed on that invoice and pay interest. You can claim the credit again once you pay the supplier.
Can I claim credit if my supplier has not filed GSTR-1?
Generally no. Credit is allowed only when the invoice appears in your GSTR-2B, which depends on the supplier filing its outward return.
Is GST on a car purchased for business allowed as credit?
Usually not. Credit on motor vehicles for carrying up to 13 people is blocked, except where they are used for further supply, passenger transport, training to drive, or transport of goods.