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Glossary · GST & Billing

What is Input Tax Credit (ITC)?

Input Tax Credit (ITC) meaning under GST — eligibility conditions under Section 16, and a worked example of how ITC reduces tax payable.

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Input Tax Credit (ITC) — meaning

Input Tax Credit (ITC) is the credit a GST-registered business can claim for the GST it paid on purchases of goods/services used for business, which it can set off against the GST it owes on sales.

What is Input Tax Credit?

Input Tax Credit (ITC) is the mechanism under GST that avoids tax-on-tax by allowing a registered business to reduce the GST it must pay on its output supplies (sales) by the GST it has already paid on its input supplies (purchases of goods and services used in the business). Conditions for claiming ITC are set out mainly in Section 16 of the CGST Act, 2017.

Conditions to claim ITC

  • The business must possess a valid tax invoice or debit note from the supplier.
  • The goods or services must have actually been received.
  • The supplier must have paid the tax to the government and filed the relevant GST return so the recipient's ITC reflects in their auto-populated GSTR-2B.
  • The recipient must have filed their own GST return claiming the credit within the time limit specified under the Act.
  • Certain categories of expenses (such as those listed under Section 17(5), e.g. motor vehicles for personal use, certain food and beverage expenses) are specifically blocked from ITC.

Worked example

A trader buys goods worth ₹1,00,000 plus GST, paying ₹18,000 as input GST. The trader then sells those goods for ₹1,50,000 plus GST, collecting ₹27,000 as output GST from the customer. Using ITC, the trader pays only ₹27,000 − ₹18,000 = ₹9,000 to the government, instead of the full ₹27,000, because credit for the GST already paid on the purchase is set off against the GST due on the sale.

Common mistakes

  • Claiming ITC on an invoice that doesn't appear in GSTR-2B because the supplier hasn't filed their return.
  • Claiming ITC on blocked categories of expenditure listed under Section 17(5) of the CGST Act.
  • Missing the statutory time limit to claim ITC for a financial year's invoices.

Sources

Last updated 2026-10-12.

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Related terms

GSTR-3BGSTR-3B is a self-declared summary GST return where a registered business reports total outward and inward supplies, tax liability and input tax credit, and pays the net GST due.Reverse Charge Mechanism (RCM)Under the Reverse Charge Mechanism (RCM), the recipient of goods or services — instead of the supplier — is liable to pay GST directly to the government.Tax InvoiceA GST tax invoice is the primary document a registered supplier issues for a taxable supply of goods or services, containing the prescribed details needed for GST compliance and the recipient's input tax credit.

Input Tax Credit (ITC) — FAQs

What are the basic conditions to claim ITC under GST?+

The recipient must hold a valid tax invoice, have received the goods/services, the supplier must have paid the tax and filed returns (reflecting in GSTR-2B), and the recipient must claim it within the time limit under Section 16 of the CGST Act.

Can ITC be claimed on all business purchases?+

No, Section 17(5) of the CGST Act blocks ITC on certain specified categories, such as motor vehicles for personal use and certain food and beverage expenses, among others — check the current blocked list on cbic-gst.gov.in.

What happens if my supplier hasn't filed their GST return?+

If the supplier hasn't filed and paid tax, the purchase won't reflect in the recipient's GSTR-2B, which can prevent or delay the recipient's ITC claim on that invoice.

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