Input Tax Credit is one of the biggest benefits of GST for businesses. Learn what it is, what you can claim, what you cannot, and the common mistakes that lead to ITC reversals.
What Is Input Tax Credit?
Input Tax Credit (ITC) allows businesses to reduce the GST they owe on sales by the GST they have already paid on purchases.
Example:
- You buy raw materials and pay ₹18,000 GST
- You sell finished goods and collect ₹30,000 GST
- You pay only ₹12,000 to the government (₹30,000 − ₹18,000)
What Can You Claim ITC On?
✅ Goods used in the course of business ✅ Services used in the course of business ✅ Capital goods ✅ Goods imported into India
What CANNOT Be Claimed
❌ Motor vehicles (with some exceptions) ❌ Food, beverages, and outdoor catering ❌ Health and life insurance (unless mandatory for employees) ❌ Works contract for construction of immovable property ❌ Personal use goods
Key Conditions to Claim ITC
- You must possess a valid tax invoice from a registered supplier
- The goods/services must have been received
- The supplier must have filed their returns and paid the tax
- You must have filed GSTR-3B
- The claim must be made within the earlier of: the due date of September return of the next financial year, or the date of filing the annual return
Common Reasons for ITC Reversal
- Supplier has not filed returns (GSTR-1 mismatch)
- Invoice not reflected in GSTR-2B
- Goods used partially for exempt supplies
- Non-payment to supplier within 180 days
Always reconcile your GSTR-2B with your purchase register monthly to catch mismatches early before they become penalties.