Module 4: Input Tax Credit (ITC) – Concepts and Claims
What is Input Tax Credit (ITC)?
Input Tax Credit (ITC) means reducing the tax you’ve already paid on purchases (inputs) from the tax payable on your sales (outputs).
For example,
- You purchase goods worth ₹1,00,000 and pay ₹18,000 as GST.
- You sell those goods for ₹1,50,000 and collect ₹27,000 GST from customers.
- You can deduct ₹18,000 (input) from ₹27,000 (output) and pay only ₹9,000 to the government.
This prevents the tax-on-tax (cascading effect) and makes GST a value-added tax.
Who Can Claim ITC?
You can claim ITC if:
- You are a registered GST taxpayer.
- You have received the goods/services.
- The supplier has filed GSTR-1, and it reflects in your GSTR-2B.
- You possess a valid tax invoice or debit note.
- The tax charged has been paid to the government by the supplier.
Documents Required for Claiming ITC
To claim ITC, the following documents are essential:
- Tax Invoice issued by a registered supplier
- Debit Notes
- Bill of Entry (for imports)
- ISD invoice (if input service distributor)
Conditions to Avail ITC
| Condition | Explanation |
|---|---|
| GST Registration | Only registered taxpayers can claim ITC |
| Actual Receipt of Goods/Services | ITC can be claimed only after goods/services are received |
| Supplier Compliance | Supplier must file returns and pay tax |
| Timely Filing | ITC should be claimed within the time limits set under GST law |
Time Limit for Claiming ITC
ITC must be claimed:
- Before the due date of September following the end of the financial year, OR
- Before filing the annual return (GSTR-9),whichever is earlier.
For FY 2024–25, this means you can claim ITC up to September 30, 2025, or the date of filing GSTR-9, whichever is earlier.
Blocked Credits – Where ITC Cannot Be Claimed
As per Section 17(5) of CGST Act, ITC cannot be claimed on:
- Motor vehicles for personal use
- Food, beverages, and outdoor catering
- Health services
- Club memberships
- Works contract services (with exceptions)
How to Claim ITC? – Step-by-Step
- Purchase Goods/Services from a registered supplier.
- Ensure the invoice is uploaded in GSTR-1 by the supplier.
- Reconcile your GSTR-2B with Purchase Register.
- Claim eligible ITC in your GSTR-3B return.
- Keep all invoices and documents properly filed for audit.
Best Practices for ITC Reconciliation
- Use accounting software with GSTR-2B import features.
- Conduct monthly reconciliation to avoid mismatches.
- Communicate regularly with vendors who delay filing GSTR-1.
- Don’t claim ineligible ITC — it can attract penalties.
Common Challenges in Availing ITC
| Challenge | Solution |
|---|---|
| Mismatch in GSTR-2B | Reconcile and follow up with vendors |
| Blocked Credits | Maintain clarity on ineligible items |
| Supplier non-compliance | Purchase from compliant vendors |
| Lack of invoice | Always collect GST-compliant invoices |
Conclusion
Understanding Input Tax Credit (ITC) is essential for GST compliance and improving your business’s cash flow. By availing eligible ITC correctly and on time, you reduce your tax liability significantly and avoid unnecessary penalties.
