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Under India’s GST, input tax credit (ITC) lets a registered business offset eligible GST paid on business purchases against its GST liability. It is not an automatic refund of GST on every expense: the business must meet the statutory conditions, keep the required evidence, account for restrictions and reversals, and claim within the applicable time limit.
How input tax credit works
When a business buys goods or services, the supplier may charge GST. If the purchase qualifies, the registered recipient can use that input tax as a credit against GST it owes on its own taxable supplies. The credit reduces tax payable; it does not by itself mean the business receives cash back.
Section 16(1) of the Central Goods and Services Tax (CGST) Act, 2017, provides for credit on inputs used or intended to be used in the course or furtherance of business. The entitlement is subject to the conditions and restrictions in the Act and rules. Read the CGST Act and Rules on CBIC’s site.
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When a business can claim ITC
Eligibility is transaction-specific. The relevant Section 16 conditions are cumulative: having an invoice alone does not establish that a purchase qualifies.
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Check each of these conditions
- GST registration: the claimant must be a registered person entitled to claim the credit.
- Business use: the goods or services must be used, or intended to be used, in the course or furtherance of business. Non-business use can restrict the credit.
- Prescribed document: the business must hold an eligible document, such as a tax invoice, debit note, bill of entry, or another document permitted under the law.
- Receipt: the business must have received the goods or services. If goods covered by one invoice arrive in lots or instalments, the Act addresses when credit may be taken: on receipt of the last lot or instalment.
- Supplier-tax condition: the tax charged must be paid to the Government by the supplier, subject to statutory mechanisms and the applicable provisions.
- Return and other requirements: the claimant must furnish the required return and comply with the other applicable statutory conditions and restrictions.
Keep evidence that supports the claim
Keep the prescribed invoice or other eligible document, purchase and receipt records, evidence of the business purpose, supplier and return reconciliation, and payment records. These are practical records that help substantiate the relevant facts; this list does not mean that every item is a separate universally prescribed form.
How use of the purchase affects the credit
Even when a purchase has a valid document and is received, the way it is used matters. Section 17 restricts credit attributable to non-business use and requires apportionment where common inputs or services support both business and non-business purposes, or both taxable and exempt supplies. Section 17(5) also blocks credit for specified categories, subject to the Act’s wording and exceptions. Check Chapter V of the CGST Act for the applicable restrictions and exceptions.
| How the purchase is used or classified | What to consider |
|---|---|
| Exclusively for business and taxable or zero-rated supplies | Potentially eligible, but only if the Section 16 conditions are met and no specific restriction applies. |
| For both business and non-business purposes | Credit attributable to non-business use is restricted; apportionment may be required. |
| For both taxable and exempt supplies | Apportionment may be required for the share attributable to exempt supplies. |
| Within a category specified in Section 17(5) | Credit may be blocked unless an applicable statutory exception applies. Check the precise clause and facts rather than assuming that a business purchase qualifies. |
The table is a screening aid, not a decision on a particular invoice. Mixed-use calculations and statutory exceptions can depend on the facts and applicable rules.
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Under the general current rule in Section 16(4), claim ITC for an invoice or debit note by 30 November following the end of the relevant financial year, or before filing the relevant annual return, whichever is earlier. The date is tied to the financial year to which the invoice or debit note relates—not simply to when the business notices the credit.
Sections 16(5) and 16(6) provide retrospective relief in specified cases. They are targeted provisions, not a general extension of the deadline for all older credits. CBIC Circular 237/31/2024-GST, dated 15 October 2024, explains their implementation; assess the relevant period and facts before relying on either provision. Read CBIC Circular 237/31/2024-GST.
An older CBIC sectoral FAQ gives a September/annual-return formulation. That wording is not the ordinary current Section 16(4) deadline; use the Act’s current rule and check for a specific applicable exception. View CBIC’s sectoral FAQs.
What happens if the supplier is not paid within 180 days
If a recipient has taken ITC but does not pay the supplier the value of the supply and the tax within 180 days from the invoice date, the general statutory treatment requires a proportionate amount corresponding to the unpaid amount to be added to output tax liability with interest. The credit may be re-availed when the recipient pays the supplier. This particular 180-day rule does not apply to supplies on which tax is payable under reverse charge. Check the current rule and any later amendments for the transaction. Review CBIC’s ITC Rules and the CGST Act.
How to handle ITC in the return
CBIC Circular 170/02/2022-GST explains the reporting treatment in GSTR-3B: ineligible credit under Section 17(5) or other provisions is reversed in Table 4(B), and Table 4(D)(2) is discussed for certain time-barred or otherwise unavailable ITC. The circular also discusses corresponding details in GSTR-2B. Confirm the current GST portal instructions and applicable reporting requirements before filing; portal processes and directions can change. Read CBIC Circular 170/02/2022-GST.
For routine control, reconcile purchase records and eligible documents with supplier and return information, assess restrictions before treating a credit as available, and track both the claim deadline and supplier-payment status. Do not treat a figure appearing in a reconciliation statement as proof by itself that every statutory condition is satisfied.
A practical eligibility check
- Identify the invoice or other permitted document and the financial year it relates to.
- Confirm the claimant’s registration, business purpose, and receipt of the goods or services.
- Check supplier-tax and return conditions, and determine whether Section 17 blocks or apportions any part of the credit.
- Track payment against the invoice so any 180-day consequence can be addressed.
- Confirm the Section 16(4) deadline, any genuinely applicable Sections 16(5) or 16(6) provision, and current return instructions before reporting the credit.
This is a general explanation of India’s CGST framework, not a determination that a particular invoice qualifies. For material or disputed claims, check the law and current portal directions for the relevant facts and consider advice from a qualified GST professional.
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