Input Tax Credit (ITC): Meaning, Eligibility & How To Claim ITC In GST

Pragya Pathak

Author

Updated: 17-03-2026 at 3:30 PM

India's tax system has undergone, and continues to undergo, a series of changes to improve it for the people of India, and one of the most significant was the introduction of the Goods and Services Tax in July 2017. GST replaced various indirect taxes, such as excise duty and VAT, to make the tax structure simpler and less complex. There are several features of GST, and one of the most significant concerns is the Input Tax Credit GST.

Input Tax Credit is a business-friendly mechanism that allows entities to reduce their tax liability by claiming credits on tax paid on business purchases. This mechanism ensures that tax is charged only on the value added at each stage of the supply chain and not repeatedly on the full value of the goods and services. This makes the tax structure not only simplified for businesses but also much more transparent.

Read the article to learn more about the specifics of the ITC mechanism, ranging from its meaning and eligible entities to the list of required documents and answers to popular questions, like ‘How to claim ITC in GST?’.

GST ITC Overview

The table below summarises key details of Input Tax Credit under GST that one should know about.

ITC in GST meaning	Tax that a business entity pays while purchasing goods and services that can be later used to reduce the tax liability on its sales.
Governing law	Sections 16 to 21 of the Central Goods and Services Tax (CGST) Act, 2017
Purpose	To reduce the tax liability of a business by avoiding double taxation
Who can claim it?	Registered GST taxpayers purchasing goods and services for business purposes
Types of ITC	CGST, SGST, and IGST
Which form is to be filled out to claim ITC?	Form GSTR-3B
Time limit	Either by 30th November following the FY in which the invoice is issued or by the date of filing of the annual returns, whichever is earlier.

What Is Input Tax Credit?

ITC meaning in GST, is the tax that a business entity pays while purchasing goods and services that can be later used to reduce the tax liability on its sales (also called output tax). The sole purpose of the ITC is to ensure that tax is charged only on the value a business adds to a product or service. It is a significant mechanism that protects businesses against double taxation.

ITC examples in GST: Think of yourself as a manufacturer for some time. You purchase furniture worth Rs 50,000 and pay 18% GST, totalling Rs 9,000. After a few days, the manufacturer sells the previously purchased furniture for Rs 80,000, with GST of Rs 14,400 payable by the buyer. Now, in this instance, the manufacturer will not be liable to pay the entire GST. i.e., Rs 14,400 to the government, but Rs 5400 as the previously paid GST, which was Rs 9000, will be deducted from the newly collected GST (Rs 14,400 - 9000 = 5400). So, in the end, because of the ITC mechanism, GST was only charged at the value added by the manufacturer (50,000 - 80,000 = 30,000), making the tax system much more efficient and fair.

Who Can Claim ITC In GST?

Input Tax Credit can only be claimed by an individual registered under the GST mechanisms, but only if they fulfil all the ITC conditions under GST Act. The necessary conditions to claim ITC in GST are as follows:

The dealer should have a tax invoice.
The goods and services must be received by the buyer.
The recipient should file the GSTR-3B form.
Tax must be paid to the relevant government authorities by the seller.
The recipient is required to pay for the purchased goods and services within 180 days from the date of the invoice.
In case the goods are sent in instalments, ITC can only be claimed after the last instalment is sent by the seller.
Please note that the Input Tax Credit can only be claimed for taxable supplies of goods and services, and the purchased items should then be used for business-related activities.
ITC cannot be claimed by a business entity if depreciation has been claimed on the tax of a capital good.
ITC must be claimed within a time limit. i.e., either by 30th November following the FY in which the invoice is issued or by the date of filing of the annual returns, whichever is earlier.
Ensure that ITC claims made in form GSTR-3B match the details in the form GSTR-2B, as per the CGST Rules 36(4).

What Can/Cannot Be Claimed As ITC?

Please note that the ITC eligibility under GST can only be claimed by business entities for business purposes. It cannot be claimed for goods and services purchased for personal use, exempt supplies, or supplies that are not covered under the ITC mechanism, as clearly mentioned in the CGST rules, section 17(5).

Detailed List Of Ineligible Goods & Services

Section 17(5) of the CGST rules clearly mentions all the ineligible goods and services outside the purview of the Input Tax Credit mechanism. Those goods and services are as follows:

Motor vehicles, used for personal use (exceptions made for reselling, vehicles for commercial use, or vehicles used as mandated cab services).
Food and beverages, overall catering services.
Membership fees for clubs or gyms.
Health and life insurance, except for government mandates.
Expenses related to construction.
Damaged, lost, or gifted goods.

Also Read: List Of Documents Required For GST Registration In India

How To Claim Input Tax Credit In GST?

Before applying to claim Input Tax Credit, individuals are first advised to make a folder of all the required documents needed while making a request for an ITC claim. The rough process of claiming ITC is described below for one’s clarity:

Step 1: Carefully collect the tax invoice issued by the supplier from whom the goods and services were purchased.

Step 2: Check whether the supplier has uploaded the invoice in their GSTR-1 return.

Step 3: Record all the details of the purchase along with the details of the paid GST.

Step 4: Fill out form GSTR-3B carefully and accurately for claiming ITC.

Please ensure that you fulfil all the conditions as mentioned above in this article to successfully claim Input Tax Credit.

What Is The Time Limit For Claiming ITC?

There are two specific dates that businesses are required to follow and abide by when applying for claiming ITC, whichever date comes earlier. The dates as mentioned in the GST ITC rules are:

30th November of the year following a financial year, or
Date of filing annual returns for that financial year

What Are The Documents Required For ITC Claim?

Businesses are required to submit some necessary documents while applying to claim ITC on eligible goods and services. The list of documents required for ITC claim is as follows:

An invoice issued by the supplier of goods or services
Debit note issued by the supplier to the recipient
Bill of entry
Bill of supply issued by the supplier of goods or services
An invoice or credit note issued by the Input Service Distributor (ISD) as per the invoice rules
An invoice that is issued under specific situations, like the bill of supply, which is issued instead of the tax invoice if the amount is less than Rs 200, or in situations where the reverse charge is applied under the ITC reversal rules in GST

Reversal Of Input Tax Credit

The Input Tax Credit rules have made it very clear that ITC can only be claimed on business-related goods and services. However, in some situations, the law requires taxpayers to reverse the already paid ITC, which means adding the claimed credit back to the taxpayer’s output tax. This is done to ensure that no one takes undue advantage of the ITC mechanism. ITC reversal is covered under Sections 17 and 18 of the CGST Act and related GST rules.

Situations wherein ITC reversal is needed are laid down below for one’s reference:

1. Non-Payment To Supplier Within 180 Days

If a taxpayer claims Input Tax Credit on a purchase but they failed to pay the supplier within 180 days of the issuance of the invoice, their claimed ITC will be reversed. The reversed amount is added back to the output tax, along with interest, which increases the tax liability of the business. After clearing the payment, the taxpayer can apply to claim ITC again.

2. Goods & Services For Personal Uses

One of the main conditions of applying for claiming ITC is that the goods and services are to be used for business purposes. However, if someone claims ITC on goods and services used for personal reasons, their ITC will be compulsorily reversed.

3. ITC On Exempt Supplies

If an individual claims Input Tax Credit on goods and services used to produce exempt supplies, meaning supplies that are not covered under the Goods and Services Tax framework, their claimed ITC will be definitively reversed.

4. Incorrect Amount Of ITC

If a taxpayer claims an incorrect amount of the ITC, the extra amount will be reversed along with interest or penalties based on the nature of the error.

ITC Reconciliation Under The GST Framework

The Input Tax Credit Reconciliation process simply refers to the process of matching the details of the claimed ITC from a taxpayer’s books of accounts with the information available on the GST portal, specifically from forms like GSTR-2B, GSTR-3B, and others. This must be done by the taxpayers to ensure that the claim made by the business entity is accurate, eligible, and valid to avoid future disputes with the tax authorities.

Taxpayers can do the Input Tax Credit Reconciliation process by matching their details in the following format:

Download GSTR-2B from the GST portal and then match the details prepared in the draft GSTR-3B. Note the differences and correct them on time.
ITC claimed by an individual in GSTR-3B must match the details specified by their supplier in their GSTR-1 and also shown in the Invoice Management System (IMS), and if accepted, the details will go to GSTR-2B.

The possible and common reasons for mismatched data are when suppliers fail to upload invoices, they upload incorrect data, or file returns after the deadline. When such situations occur, taxpayers are temporarily restricted from filing ITC claims, and those who have already filed are notified about the mismatched data. Therefore, please remain careful while filing for ITC claiming.

How To Check & Maximise ITC Claims?

Businesses can check and maximise their ITC claims by using various measures, such as technological. Some of the ways that businesses can adopt to maximise their ITC claims, including technological measures as laid down below for one’s reference:

Shift your operations to a GST-compliant accounting software. As these are efficient technological alternatives, they will help businesses in recording invoices, details related to GST, and others, to ensure accurate GST filings.
Manual data entries are prone to errors in various numbers; therefore, it is wise to use automated tools, like Optical Character Readers, that can capture data directly by scanning physical documents.
Ensure to do the Input Tax Credit Reconciliation process every couple of months.
Create and maintain a separate folder for eligible and ineligible goods and services, which would help greatly when applying for claiming Input Tax Credit.

Conclusion

Input Tax Credit (ITC) is one of the most important features of the Goods and Services Tax framework. It has been specifically introduced to allow businesses to claim credit for the tax paid on purchases made for business-related purposes. This claim helps businesses reduce their tax liability and avoid double taxation. As helpful as it is, claiming Input Tax Credit also demands that businesses fulfil all the conditions, which are strict and numerous, to ensure that only eligible businesses apply for claiming ITC.

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