Input Tax Credit (ITC) under GST in India

ITC allows businesses to use eligible GST paid on business purchases against the GST payable on taxable sales. However, the credit must meet the applicable GST conditions before you can claim it.

• Incur GST on eligible purchases: A registered business pays GST on eligible goods or services used for business purposes. The tax may qualify as ITC if the applicable conditions are met.
• Check GSTR-2B: Review GSTR-2B for ITC information reported through supplier filings, ISD documents, reverse-charge supplies, and import data.
• Reconcile the records: Match GSTR-2B with purchase invoices and books of accounts. Check the eligibility of each credit before claiming it.
• Claim eligible ITC: Report eligible ITC in the relevant section of GSTR-3B. GSTR-2B is a read-only statement and does not make every credit shown in it automatically claimable.
• Set off the liability: Eligible ITC can be used against applicable output tax liability as per the prescribed utilization rules. IGST credit must be fully utilized first. It can then be used against CGST and SGST/UTGST as permitted under the rules.
• Maintain proper records: Keep valid invoices and other required documents. Regularly reconcile ITC to identify errors, ineligible credit, and reversals.
• Rule 86B: If the value of taxable supplies (excluding exempt and zero-rated supplies) exceeds ₹50 lakh in a month, the taxpayer cannot use the electronic credit ledger for more than 99% of output tax liability, so at least 1% must be paid in cash, subject to specified exceptions.

Example of ITC for a Trading Business

Suppose a registered electronics trader purchases goods for ₹1,00,000 plus 18% GST (₹18,000) and sells them for ₹1,50,000 plus 18% GST (₹27,000).

The trader offsets ₹18,000 ITC against ₹27,000 GST payable, leaving ₹9,000 to pay.

Calculating ITC is not just about adding up the GST shown on purchase invoices. You first need to identify eligible credit, remove any ineligible or reversed amounts, and then use the available ITC against your output tax liability.

Basic formula: Net GST payable = Output tax liability − Eligible ITC

For example, suppose a business has ₹50,000 of eligible ITC after excluding blocked credit and making required reversals. Its output GST liability for the same tax period is ₹80,000.

Net GST payable = ₹80,000 − ₹50,000 = ₹30,000

The business can use the eligible ITC to reduce its output tax liability and pay the remaining ₹30,000, subject to the applicable ITC utilization rules.

1. Identify the input tax: Add the GST charged on eligible business purchases and other eligible inward supplies for the relevant tax period. Eligible import-related credit may also be considered.
2. Check ITC eligibility: Verify that each credit meets the conditions under GST law. Exclude blocked, restricted, or otherwise ineligible ITC.
3. Adjust for reversals: Reduce the eligible ITC for any amount that must be reversed under the applicable GST rules.
4. Calculate eligible ITC: The amount left after applying the required checks and reversals is the ITC available for utilization.
5. Calculate output tax liability: Determine the GST payable on taxable outward supplies for the same tax period.
6. Use the eligible ITC: Set off the eligible ITC against the applicable output tax liability according to the prescribed utilization rules.
7. Pay the balance: Any remaining output tax liability must be paid through the applicable payment mechanism.

Section 17(5) of the CGST Act lists goods and services on which ITC is generally unavailable, even when they are used for business. Key clauses include:

• Clause (a) - Motor Vehicles: ITC is generally blocked on specified passenger motor vehicles, subject to exceptions for further supply, passenger transportation, and driving training.
• Clause (aa) - Vessels and Aircraft: ITC is generally blocked on vessels and aircraft, subject to specified exceptions.
• Clause (ab) - Related Services: ITC is generally blocked on insurance, servicing, repair, and maintenance relating to vehicles, vessels, and aircraft covered by the restrictions, subject to exceptions.
• Clause (b) - Food and Personal Services: ITC is generally blocked on food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, leasing or hiring of specified motor vehicles, vessels and aircraft, life and health insurance, club and fitness memberships, and employee travel benefits such as leave or home travel concession. Exceptions include further supply of the same category, use as part of a composite or mixed supply, and cases where the employer is legally obliged to provide the service.
• Clause © - Works Contract: ITC is blocked on works contract services for constructing immovable property (other than plant and machinery), except when used for further supply of works contract services.
• Clause (d) - Construction of Immovable Property: ITC is blocked on goods or services used for constructing immovable property (other than plant and machinery) on one’s own account, even when used for business.
• Clause (e) - Composition Tax: ITC is unavailable on goods or services on which tax has been paid under the composition scheme.
• Clause (f) - Non-Resident Taxable Person: ITC is generally unavailable to a non-resident taxable person, except for goods imported by them.
• Clause (fa) - CSR Activities: ITC is blocked on goods or services received and used, or intended to be used, for activities relating to the taxpayer’s obligations under corporate social responsibility (Section 135 of the Companies Act, 2013).
• Clause (g) - Personal Consumption: ITC is blocked on goods or services used for personal consumption.
• Clause (h) - Lost or Disposed Goods: ITC is blocked on goods lost, stolen, destroyed, written off, or disposed of as gifts or free samples.
• Clause (i) - Tax Paid Under Certain Sections: ITC is unavailable on tax paid under Section 74 for periods up to FY 2023–24.

Before claiming ITC, check these three key conditions:

• Section 16: Meet the prescribed eligibility conditions, including valid invoices and receipt of goods or services.
• Apportionment and Reversal: Reverse or apportion ITC for exempt supplies, non-business use, or other prescribed cases.
• Section 17(5): Ensure the credit is not covered under blocked ITC.

Use the following checklist to review the key ITC conditions and restrictions:

Note: Reconcile ITC with GSTR-2B, as appearing in the statement alone does not establish eligibility.

A registered person must hold the prescribed documents and meet the applicable GST conditions to claim ITC. The key documents include:

• Tax Invoice: Invoice issued by the supplier for eligible goods or services.
• Debit Note: Debit note issued by the supplier for an increase in taxable value or tax charged.
• Bill of Entry: Bill of Entry or other prescribed customs document for eligible IGST paid on imported goods.
• Self-Invoice for Reverse Charge: Invoice issued by the recipient where the applicable reverse-charge provisions require the recipient to issue one.
• ISD Invoice or Credit Note: Document issued by an Input Service Distributor for distributing eligible ITC on input services.
• Other Prescribed Documents: Other documents may apply in specific transactions as prescribed under GST law.

The applicable document must include the prescribed particulars, such as supplier and recipient details, GSTIN (where applicable), document number and date, taxable value, tax amount, and other required information. HSN code or SAC details must be provided where required under the applicable GST invoice rules.

Businesses should also reconcile their purchase records and documents with GSTR-2B before claiming ITC. GSTR-2B is a read-only, auto-drafted ITC statement. It helps identify ITC reported by suppliers, ISDs, and import systems, but it does not by itself make every credit legally claimable. Taxpayers must independently verify ITC eligibility under GST law.

Claiming ITC under GST requires more than matching purchase invoices with GSTR-2B. The process involves verifying eligibility, reconciling available credit, reporting it correctly in GSTR-3B, and using the eligible credit according to the prescribed rules.

Step 1: Check ITC Eligibility

Before claiming ITC, verify that the applicable conditions under GST law are satisfied.

• Hold a valid tax invoice, debit note, or other prescribed document.
• Receive the goods or services.
• Use or intend to use the goods or services for business purposes.
• Check that the credit is not blocked or restricted under GST law.
• Verify the applicable supplier reporting and tax payment conditions.
• File the required GST return within the prescribed time.
• Pay the supplier within 180 days where the applicable condition requires it.
• For reverse-charge supplies, pay the applicable GST before claiming the corresponding ITC.

Step 2: Check and Reconcile GSTR-2B

Download GSTR-2B from the GST Portal and compare it with your purchase register, invoices, and books of accounts.

GSTR-2B is a read-only, auto-drafted ITC statement. It contains information reported through supplier filings, ISD filings, reverse-charge supplies reported by suppliers, and import-of-goods data from ICEGATE. However, it does not cover every type of eligible ITC. For example, ITC on import of services under reverse charge is not included in GSTR-2B. Check for:

• Missing invoices
• Duplicate invoices
• Incorrect GSTIN or invoice details
• Credit notes and amendments
• Ineligible or restricted ITC
• ITC requiring reversal

Step 3: Resolve Relevant Discrepancies

Where supplier-reported details are missing or incorrect, contact the supplier and request the necessary correction or reporting.

However, do not rely only on GSTR-2B. Taxpayers must independently verify whether the credit is legally eligible and reverse any credit that is not available under GST law. The GST Portal specifically advises taxpayers to reconcile GSTR-2B with their records and self-assess credits that may not be available under other GST provisions.

Step 4: Report Eligible ITC in GSTR-3B

Report eligible ITC and applicable reversals in Table 4 of GSTR-3B.

GSTR-2B values are used to auto-populate relevant ITC fields in GSTR-3B, but the auto-populated figures are editable. Review the figures carefully and make the required adjustments for eligible ITC, reversals, and ineligible credit before filing.

Do not treat the GSTR-2B amount as an automatic entitlement to claim ITC. Self-assess the credit and consider eligible credits that may not appear in GSTR-2B.

Step 5: Use Eligible ITC Against GST Liability

After eligible ITC is reported and credited to the electronic credit ledger, it can be used against applicable output tax liability, subject to the prescribed utilization rules.

IGST credit is used first against IGST liability and may then be used against CGST and SGST/UTGST as permitted. CGST credit cannot be used to pay SGST/UTGST, and SGST/UTGST credit cannot be used to pay CGST.

Any remaining tax liability must be paid through the applicable payment mechanism.

Step 6: Verify the Filing and Maintain Records

After filing GSTR-3B, verify the filing status and save the filed return and its ARN. Retain GSTR-2B, invoices, purchase records, reconciliation statements, and supporting documents for future verification. Review subsequent returns for any corrections, reversals, or eligible reclaims.

GST provides specific rules for ITC on capital goods, job work, common input services, business transfers, and financial institutions. The applicable provisions determine how credit can be claimed, distributed, transferred, or reversed.

1. ITC on Capital Goods

Businesses can claim ITC on eligible capital goods used for business, subject to GST conditions.

• Depreciation: ITC cannot be claimed on the GST component if depreciation is claimed on that same component under the Income Tax Act (Section 16(3)).
• Exempt and Non-Business Use: ITC is unavailable for capital goods used exclusively for exempt supplies or non-business purposes. Proportionate reversal applies to common use under Section 17(2) and Rule 43.

2. ITC on Job Work

Under Sections 19 and 143 of the CGST Act, a principal can claim eligible ITC on inputs and capital goods sent to a job worker, including goods sent directly from a supplier.

• Return Period: Inputs must generally be returned within one year and capital goods within three years, unless supplied from the job worker's premises within the prescribed period.
• Exceptions: These time limits do not apply to moulds, dies, jigs, fixtures, and tools.
• Form ITC-04: The principal reports applicable job-work transactions under Rule 45. Filing is half-yearly if the preceding financial year's turnover exceeds ₹5 crore and annual if it is up to ₹5 crore. The prescribed deadlines are 25 October, 25 April, or 25 April following the financial year, as applicable.

3. ITC Through Input Service Distributor (ISD)

An Input Service Distributor (ISD) distributes eligible ITC on common input services to the relevant GST registrations of the same entity.

• Mandatory Registration: From 1 April 2025, the ISD mechanism became mandatory for distributing applicable common input-service credit, including specified services taxed under reverse charge.
• Credit Distribution: Section 20 and Rule 39 prescribe how credit is allocated among eligible recipient registrations.
• Return Filing: The ISD reports credit distribution through Form GSTR-6.

4. ITC on Transfer of Business

Under Section 18(3) and Rule 41 of the CGST Act and Rules, unutilized ITC may be transferred when a business is sold, merged, demerged, amalgamated, leased, or transferred, subject to the prescribed conditions.

• Form ITC-02: The transferor submits the form to request transfer of the unutilized credit.
• Liability Transfer: A practising Chartered Accountant or Cost Accountant must certify that the transfer includes a specific provision for transferring liabilities.
• Transferee's Acceptance: The transferee must accept the transfer before the credit is added to its electronic credit ledger. In a demerger, credit is apportioned according to the prescribed asset-value ratio.

5. ITC for Banks and Financial Institutions

Banks, financial institutions, and NBFCs engaged in accepting deposits or extending loans or advances can choose between the normal ITC method and the special 50% mechanism under Section 17(4) and Rule 38.

• Normal Method: ITC is determined under the regular rules, including applicable apportionment and reversal requirements.
• 50% Mechanism: Eligible institutions can claim 50% of the remaining input tax after excluding specified ineligible credits and non-business use.
• Same-PAN Registrations: The 50% restriction does not apply to tax paid on supplies between separately registered persons having the same PAN, as provided by the statutory exception.

Input tax and output tax represent two different sides of GST. Input tax relates to GST charged on inward supplies, while output tax relates to GST payable on taxable outward supplies.

ITC reversal means reducing or reversing ITC that was previously claimed. It may be required when the credit becomes ineligible or when GST law requires a temporary reversal. Common situations include:

• Non-Payment to Supplier Within 180 Days: If you do not pay the supplier the value of the supply along with the applicable tax within 180 days, the corresponding ITC must be reversed as prescribed. You can generally reclaim the credit after making the payment. This condition does not apply to supplies where tax is payable under reverse charge.
• Non-Payment of Tax by Supplier (Rule 37A): If the supplier has reported an invoice or debit note in GSTR-1/IFF but has not filed GSTR-3B for that tax period by 30 September following the end of the financial year, the recipient must reverse the corresponding ITC on or before 30 November of that year.
• Exempt or Non-Business Use: ITC may need to be reversed when inputs, input services, or capital goods are used partly for non-business purposes or exempt supplies. The applicable amount is determined under the prescribed rules.
• Goods Lost, Stolen, Destroyed, or Written Off: ITC is not available on goods covered by these situations under Section 17(5).
• Gifts and Free Samples: ITC must be reversed or is not available for goods given as gifts or free samples where covered by the blocked-credit provisions.
• Opting for the Composition Scheme: A taxpayer switching from the regular scheme to the Composition Scheme must reverse the applicable ITC relating to inputs in stock, inputs contained in semi-finished or finished goods, and capital goods, as prescribed under GST law.
• Credit Note Issued by Supplier: When a supplier issues a credit note that reduces the taxable value or tax charged, the recipient may need to reduce the corresponding ITC.
• Non-Receipt of Goods or Services: ITC cannot be retained where the required goods or services have not been received. Any ITC already claimed may need to be reversed.
• Blocked or Ineligible ITC: ITC must be reversed or reported as ineligible where it falls under Section 17(5) or another applicable restriction.
• Proportionate Reversal: ITC may need to be reversed when inputs, input services, or capital goods are used for both taxable and exempt supplies or for both business and non-business purposes. Rules 42 and 43 prescribe the applicable calculation.
• Other Prescribed Reversals: GST law also provides specific reversal mechanisms for certain transactions and circumstances. Some reversals may be reclaimed when the prescribed conditions are subsequently satisfied.

The applicable reversal must be reported in the relevant GST return, generally GSTR-3B. If ITC is wrongly availed and utilized, interest at 18% per annum may apply under Section 50(3) of the CGST Act, read with Rule 88B. Additional penalties may apply where specifically provided under GST law.

ITC reconciliation involves matching purchase records with GSTR-2B before claiming credit in GSTR-3B. Key checks include:

• Identify missing invoices: Find eligible invoices missing from GSTR-2B and follow up with suppliers where required.
• Check invoice details: Match GSTINs, invoice numbers, dates, taxable values, and tax amounts with purchase records.
• Check amendments and credit notes: Review amended invoices, debit notes, and credit notes that may affect ITC. Where applicable, update the relevant invoice actions in the Invoice Management System (IMS).
• Avoid duplicate ITC: Ensure the same invoice or credit is not claimed more than once.
• Verify ITC eligibility: GSTR-2B is a reference for ITC claims, but credit must also meet applicable GST conditions and restrictions. Accepted IMS records are reflected in GSTR-2B, while rejected records are excluded and pending records carry forward for later action.
• Recompute GSTR-2B: Recompute GSTR-2B after changing IMS actions to reflect the latest records before filing GSTR-3B. IMS actions for the period freeze once GSTR-3B is filed.
• Reconcile RCM and imports: Check reverse-charge supplies separately and match eligible import IGST with the relevant Bill of Entry and ICEGATE data.
• Record required reversals: Identify ineligible or reversible ITC and report the required reversal in the appropriate GSTR-3B table.

Regular ITC reconciliation helps businesses detect errors early, avoid excess or duplicate ITC claims, and maintain accurate GST records.

You can verify ITC reported for a tax period through your filed GSTR-3B, Electronic Credit Ledger, and GSTR-2B. These records help you check the credit claimed, the balance available for use, and differences that may require reconciliation.

1. Filed GSTR-3B

Table 4 of GSTR-3B shows ITC available, reversals, and other ITC-related details. The filed return is the primary record of the ITC reported for that tax period. How to view your filed GSTR-3B:

1. Log in to the GST Portal.
2. Go to Services > Returns > Returns Dashboard.
3. Select the financial year and return period.
4. Open the GSTR-3B tile.
5. View or download the filed return.

GST Portal changes: From the July 2025 tax period, Table 3's outward tax liability became non-editable. From the November 2025 tax period, Table 3.2's inter-State supplies breakup also became non-editable, following the respective GSTN advisories.

2. Electronic Credit Ledger

The Electronic Credit Ledger shows the ITC balance available for utilization after credits, utilization, and applicable adjustments. Its balance may differ from the ITC reported in a particular GSTR-3B due to later transactions. The Electronic Credit and Reclaimed Statement also helps track specified ITC reversals and reclaims.

3. GSTR-2B

GSTR-2B provides system-generated ITC information based on supplier filings, ISD documents, reverse-charge supplies reported by suppliers, and import data from ICEGATE.

Reconcile GSTR-2B with purchase invoices and ITC reported in GSTR-3B. Credit appearing in GSTR-2B is not automatically eligible.

4. ARN of the Filed Return

The GST Portal generates an Acknowledgment Reference Number (ARN) after successful filing of GSTR-3B. Keep the ARN as proof of filing, along with the filed return, GSTR-2B, invoices, and supporting records for ITC verification and reconciliation.