Input tax credit: the basics every business should know

Updated: 23 August 2026 · Reviewed for the current GST 2.0 rate structure and portal behaviour.

Input tax credit (ITC) is the GST you paid on purchases, used to reduce the GST you owe on sales. It is also the most litigated, most notice-generating part of GST. The rules below are the ones that matter daily.

The four conditions to claim ITC

1. You hold a valid tax invoice (or debit note) from a registered supplier.
2. You have received the goods or services.
3. The invoice appears in your GSTR-2B — i.e. the supplier reported it and, where applicable, hasn't marked it ineligible via the portal's invoice-management flow.
4. You file your GSTR-3B claiming it — and the supplier's tax is actually paid to the government.

Condition 3 changed the game: your credit now depends on your supplier's compliance. Reconcile monthly and choose suppliers accordingly.

Credits that are blocked regardless

Some GST can never be claimed (section 17(5)) — the frequent ones:

• Motor vehicles for personal/staff transport (with narrow exceptions like transport businesses and driving schools)
• Food and beverages, catering, club memberships, personal beauty and health services
• Construction of immovable property on your own account (other than plant and machinery)
• Goods lost, stolen, destroyed, written off, or given as gifts and free samples
• Anything used for exempt supplies or personal consumption (proportionate reversal)

Reversals to remember

• 180-day rule: don't pay your supplier within 180 days of the invoice, and the credit reverses (with interest) until you do pay.
• Mixed use: inputs used partly for exempt supplies or personal purposes need proportionate reversal.
• Credit notes: when a supplier issues you a credit note, the matching credit must come back out.

Keeping claims safe: a working checklist

1. Record every purchase invoice promptly — unrecorded invoices can't be matched.
2. Reconcile books vs GSTR-2B every month; claim from the matched set.
3. Chase suppliers whose invoices are missing before their next filing window.
4. Track the 180-day payment clock on creditors.
5. Keep the trail: invoice, receipt evidence, payment proof — the three things every ITC query asks for.