Input Tax Credit, without the confusion.

What is Input Tax Credit (ITC)?

Input Tax Credit is the GST you've already paid on your business purchases — inputs, input services, and capital goods — which you can set off against the GST you collect on your own sales. Instead of paying the full output tax to the government and separately trying to recover what you paid your suppliers, you simply pay the net difference. It's the core mechanism that keeps GST from cascading — tax being charged on tax — at every step of a supply chain.

For most GST-registered businesses, ITC is real money. Getting it right — claiming everything you're entitled to, and nothing you're not — is one of the highest-leverage things a finance function can do every month. For the full picture of how GST fits together, see our complete GST guide.

Conditions to claim ITC

You can claim ITC on a purchase only when all of these hold true:

Miss any one of these and the credit is at risk — most commonly, businesses lose ITC because a supplier hasn't filed, or because a payment slipped past 180 days without anyone noticing.

What ITC is blocked

Even when you hold a valid invoice, GST law blocks credit on certain categories — largely goods and services treated as personal, or not directly tied to your taxable business. The common ones:

• Motor vehicles for personal transport of persons (with limited exceptions — e.g., further supply, transport of passengers/goods, or driving training)
• Food and beverages, outdoor catering, health services, cosmetic and plastic surgery — unless used to make an outward taxable supply of the same category
• Membership of a club, health and fitness centre
• Travel benefits to employees on vacation (like leave or home travel concession)
• Works contract services for construction of an immovable property (except plant and machinery, or where it's an input service for further works contract)
• Goods or services used for personal consumption
• Goods lost, stolen, destroyed, written off, or given away as gifts or free samples
• Tax paid under the composition scheme

This list has exceptions and sector-specific carve-outs that go beyond what we can cover here — when a purchase looks borderline, check the latest position on the GST portal or ask a CA before you claim it.

How to claim ITC in GSTR-3B

Eligible ITC is claimed in Table 4 of GSTR-3B, split into categories (inputs, capital goods, input services) and further split between eligible and ineligible credit. The amount you can safely claim should be reconciled against your GSTR-2B before you file — not just pulled from your own purchase register — because current rules tie eligible ITC closely to what your suppliers have actually reported against your GSTIN.

Reconciling ITC with GSTR-2B

GSTR-2B is the auto-drafted statement of what your suppliers have filed against your GSTIN for the period. Reconciliation means matching every invoice in your purchase register against your 2B, line by line, before you file GSTR-3B — catching the invoices your supplier forgot to report, the ones with a mismatched GSTIN or invoice number, and the ones that landed in the wrong tax period.

Done by hand in a spreadsheet, this is slow and error-prone, especially with hundreds of monthly purchase invoices. TatvaBooks auto-reconciles your purchase register against GSTR-2B and flags exactly what doesn't match, so you claim what you're entitled to and chase the right suppliers for the rest. See the GSTR-2B reconciliation guide for how the matching works end to end.

ITC reversal — the 180-day rule

If you claim ITC on a purchase but don't pay your supplier — invoice value plus tax — within 180 days of the invoice date, you're required to reverse that credit, along with interest, under Rule 37. You can reclaim it once you actually make the payment. This rule catches out businesses more often than you'd expect, usually on long-outstanding supplier balances that no one is tracking against the clock. It's worth a monthly check on aged payables specifically for this reason.

Frequently asked questions