Key points
- ITC is the GST you paid on business purchases, used to reduce the GST you owe on sales.
- You can claim it only if you have the invoice, received the goods or services, the supplier paid the tax, and the bill appears in your GSTR-2B.
- Some credits are blocked, such as most cars, food and personal use.
- Pay suppliers within 180 days or reverse the credit until you do.
- The last date to claim credit for a year is 30 November of the next year, or your annual return date if earlier.
What is input tax credit?
When you buy goods or services for your business, you pay GST on them. When you sell, you collect GST from your customers. Input tax credit (ITC) lets you use the GST you paid on purchases to pay the GST you owe on sales. You only pay the government the difference.
| Amount | |
|---|---|
| You buy stock worth ₹1,00,000 + 18% GST | GST paid: ₹18,000 |
| You sell it for ₹1,25,000 + 18% GST | GST collected: ₹22,500 |
| GST you pay the government | ₹22,500 − ₹18,000 = ₹4,500 |
Without ITC, tax would pile up at every stage of the supply chain. With it, each business pays tax only on the value it adds.
Conditions to claim ITC
Section 16 of the CGST Act sets out the conditions. All of them must be met:
- You are registered Only a GST-registered person can claim credit.
- You have a valid tax invoice or debit note Issued by a registered supplier, with your GSTIN on it.
- You have received the goods or services Goods delivered to a third party on your instructions count as received.
- The bill appears in your GSTR-2B Your supplier must have reported it in their GSTR-1. This is Section 16(2)(aa).
- The supplier has paid the tax Through their GSTR-3B.
- You have filed your own GSTR-3B The credit is claimed through your return.
GSTR-2B is the key document. It is a monthly statement, usually generated on the 14th, showing the credit available to you based on what your suppliers reported. With the Invoice Management System (IMS), you can accept, reject or keep pending each invoice before 2B is finalised. See our reconciliation guide.
Blocked credits: where ITC is not allowed
Section 17(5) lists purchases on which credit is not allowed even if you use them in business. The main ones are:
- Motor vehicles for people with seating for 13 or fewer, unless you use them to sell vehicles, carry passengers for a fee, or train drivers. Related insurance, repair and servicing are also blocked.
- Food, drinks and outdoor catering, beauty treatment, health services, cosmetic surgery, and life and health insurance, unless required by law for employees or used to make the same kind of supply.
- Club and gym memberships and travel benefits for employees on holiday.
- Construction of immovable property on your own account, except plant or machinery.
- Goods lost, stolen, destroyed, written off, given as gifts or free samples.
- Goods or services for personal use.
- Tax paid under the composition scheme and tax paid because of fraud or suppression.
When credit has to be reversed
The 180-day payment rule
If you don’t pay your supplier, including the GST, within 180 days of the invoice date, you must reverse the credit and pay interest. You can claim it again once you pay. This is Rule 37.
Exempt and personal use
If you use common inputs for both taxable and exempt sales, or for both business and personal use, the share used for exempt or personal purposes must be reversed. Rules 42 and 43 explain how to work it out, including for capital goods.
Supplier doesn’t pay their tax
If your supplier reported the invoice but didn’t pay the tax through their GSTR-3B, the credit can be recovered from you. Keep an eye on suppliers who regularly file late.
Time limit for claiming ITC
Under Section 16(4), credit for a financial year must be claimed by 30 November of the following year, or the date you file your annual return for that year, whichever is earlier. Credit for a bill dated in March 2026, for example, must be claimed by 30 November 2026 at the latest.
How credit is used: the set-off order
| Credit available | Used against (in order) |
|---|---|
| IGST | IGST first, then CGST and SGST in any order |
| CGST | CGST, then IGST |
| SGST / UTGST | SGST, then IGST |
CGST credit can’t be used to pay SGST, and SGST credit can’t be used to pay CGST. Your software should keep the three separate.
Seven ways to avoid losing credit
- Enter purchase bills promptly Bills entered late are bills reconciled late.
- Reconcile with GSTR-2B every month Find missing and mismatched bills while suppliers can still fix them.
- Check supplier GSTINs A cancelled or wrong GSTIN means no credit.
- Follow up with suppliers Send them a list of bills missing from your 2B.
- Pay suppliers within 180 days Or plan for the reversal.
- Know your blocked credits Don’t claim credit on items in Section 17(5).
- Claim before 30 November Don’t leave last year’s credit too late.
Milaan ERP records input tax on every purchase bill, matches it with GSTR-2B, lists bills at risk and builds your GSTR-3B credit figures from reconciled data.
This guide explains GST rules in simple words and reflects the law as we understand it on 28 October 2026. Rules, rates and dates change, so please confirm with your CA or the official notifications before acting on it.