How to claim Input Tax Credit (ITC) — the rules that matter

Input Tax Credit (ITC) is what you reclaim against the GST you paid your suppliers. Claim too much and you face notices; claim too little and you overpay GST. Here is the playbook.

Step 1: Confirm you have a valid tax invoice

Supplier GSTIN, your GSTIN, HSN code, GST rate and amount — all mandatory. Bill of supply (composition dealer) does NOT qualify. Self-invoice required for RCM transactions.

Step 2: Verify supplier filed their GSTR-1

Your ITC depends on your supplier reporting the sale to you in their GSTR-1. Check GSTR-2A / 2B for the supplier's filing. Missing → chase the supplier; if they refuse, you lose ITC.

Step 3: Goods must have been received

ITC only on goods physically received, not just invoiced. Bill-to-ship-to model (third-party delivery) qualifies if you have proof of receipt.

Step 4: Tax must have been paid to the government

If your supplier collected GST from you but didn't deposit it, the government can deny YOUR ITC. Check GSTR-2B which only shows transactions where tax was paid.

Step 5: Avoid restricted credits

Section 17(5) blocks ITC on: personal vehicles (with exceptions), food and beverages, club memberships, gifts, employee benefits beyond statutory minimum, construction of immovable property. Don't claim — auto-flag in audit.

Step 6: Reverse ITC if vendor unpaid in 180 days

If you haven't paid your supplier within 180 days of invoice date, reverse the claimed ITC plus interest. Re-claim when you eventually pay.

Step 7: Watch the time limit

ITC can be claimed up to 30th November of the following financial year. After that, the credit lapses permanently. Reconcile GSTR-2B monthly to never miss.

Frequently asked questions