Input Tax Credit
Input tax credit: the money, and the risk
The single biggest source of GST money and GST notices.
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Input tax credit is the reason GST does not become a tax on a tax. You pay GST on what you buy, charge GST on what you sell, and hand over only the difference. For most businesses the credit is worth more than the profit margin – which is exactly why the law surrounds it with conditions.
Section 16(2) sets five conditions, and they are cumulative. Fail any one and the credit fails entirely: you must hold the invoice, the supplier must have reported it, it must not be restricted in your GSTR-2B, the tax must actually have reached the government, and you must have filed your return.
Two further rules catch people out. You must pay your supplier within 180 days or reverse the credit with interest. And the claim itself expires – 30 November following the financial year, or the date you file the annual return, whichever comes first.
Worked example
What a supplier’s default actually costs you
| You buy goods worth ₹10,00,000 + 18% GST | ₹1,80,000 credit claimed | Invoice is genuine, goods received |
| Supplier never files his GSTR-3B | Condition 16(2)(c) fails | Tax never reached the government |
| Rule 37A reversal by 30 November next year | ₹1,80,000 reversed, plus interest | Re-claimable only if he eventually files |
You did nothing wrong and still lost ₹1.8 lakh of working capital. This is why checking a new supplier’s filing history is not paranoia – it is basic commercial diligence.
The mistakes that cost people money
Not theoretical risks — the ones we actually see land on clients’ desks.
Claiming from your purchase register instead of GSTR-2B. The register is what you think you bought; 2B is what the law will actually let you claim.
Forgetting the 180-day payment rule on a supplier you are in dispute with. The credit reverses with interest whether or not the dispute is your fault.
Filing the annual return early. It closes your own window to claim any credit you later discover you missed for that year.
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Input Tax Credit — the complete guide
10 pages covering all 19 provisions, with the plain-language explanation and practice notes for each. Print it, keep it, share it with your accountant.
Common questions on this
Straight answers to what people actually ask us.
Can You Claim ITC on a Car Purchased for Business?
ITC on a car bought for the business is blocked under Section 17(5) in most cases — with three specific except…
Supplier Hasn’t Filed Their Return — Can You Still Claim ITC?
If your supplier hasn’t filed and paid, you generally can’t safely claim that ITC — and IMS makes this visible…
Last Date to Claim ITC for a Financial Year
ITC for a financial year must be claimed by 30 November of the next FY, or the annual return filing date — whi…
What Happens If You Don’t Pay Your Supplier Within 180 Days?
Don’t pay your supplier within 180 days of the invoice and you must reverse the ITC you claimed, with interest…
Can You Claim ITC on a Mobile Phone Bought for Office Use?
Yes, ITC on a mobile phone bought for genuine business use is allowed — it isn’t on the blocked credit list. H…
How to Reverse ITC When Your Goods Are Exempt
Mixing taxable and exempt supplies means part of your ITC has to be reversed under Rule 42 (inputs/services) a…
Your Credit Ledger Is Blocked by the Department — What Now?
Rule 86A lets the department block your ITC for up to a year on suspicion of fraud — but you can file a repres…
Every provision on input tax credit
All 19 of them, each with a plain-language explanation and the full legal text.
CGST Rules, 2017 · 13
CGST Act, 2017 · 6
Reading is free. Getting it wrong isn’t.
Stuck on input tax credit for your own business?
You now know more about this than most people who will advise you on it. If the numbers are big enough that being wrong matters, send us the facts – we will tell you where you stand before you commit to anything.
6+ years · 2,500+ GST registrations filed · Bhopal, serving all of India