Input Tax Credit

What is Input Tax Credit?

Input Tax Credit (ITC) is the heart of GST. It lets a registered business reduce the tax it pays on outputs (sales) by the tax already paid on inputs (purchases). This is what removes the cascading tax-on-tax effect.

The four conditions for claiming ITC

To claim ITC you must satisfy Section 16 conditions: (1) possess a valid tax invoice, (2) have actually received the goods or services, (3) the supplier must have paid the tax and the invoice must appear in your GSTR-2B, and (4) you must have filed your return. ITC for an invoice is time-barred after the GSTR-3B of November following the financial year (or the annual return, whichever is earlier).

Blocked credits

Section 17(5) blocks ITC on certain items even if used in business — motor vehicles (with exceptions), food and beverages, club memberships, personal consumption, and goods lost/stolen/destroyed/given as free samples.

ITC reversals

ITC must be reversed in specific situations: if you don't pay the supplier within 180 days, on inputs used for exempt supplies or personal use, and on goods written off. Proper ITC management — matching purchases to GSTR-2B and reversing where required — is one of the biggest levers for legitimate tax savings.