Here's the idea behind input tax credit (ITC) in one line: the GST you pay on business purchases can be subtracted from the GST you collect from customers — so you only hand the government the difference.
Simple in theory. In practice, businesses lose lakhs every year — from mismatched invoices, blocked items, and suppliers who don't file their returns. This guide shows you how to claim ITC correctly and actually keep it.
We'll cover who can claim it, what's permanently blocked, how your GSTR-2B (the auto-generated statement of credit available to you) decides what you can claim, and what makes you lose credit you'd already taken. Want it handled every month? Our GST team reconciles it before each filing.
How input tax credit works
When you buy something for your business and pay GST on it, your supplier passes that GST to the government. You then get to claim it back as credit — but only if three things are true: the purchase is for your business, your supplier has actually filed their GST returns, and the invoice shows up in your GSTR-2B (your monthly list of available credit).
In simple terms: if you collect ₹50,000 in GST from your customers this month and have ₹30,000 in eligible ITC, you only remit ₹20,000 to the government. The ₹30,000 in credit is your money already in the system.
What you can claim — and what's permanently blocked
ITC is available on most goods and services used for your taxable business supplies. Section 17(5) of the CGST Act permanently blocks ITC on certain categories regardless of business purpose:
- Motor vehicles (unless you're in transport, rental or motor vehicle sales): no ITC on cars, SUVs or bikes used for executive or employee travel
- Food and beverages: canteen services, catering, meals for employees
- Health insurance for employees (unless legally mandated)
- Works contracts for construction of immovable property: building your own office, for example
- Club memberships, beauty treatment, personal consumption
Common trap: A company buys a car for a director's use and tries to claim ITC. Under Section 17(5) this is blocked regardless of business meetings. Motor vehicle ITC is only available to businesses in transport or rental sectors.
GSTR-2B — the document your credit actually lives in
ITC eligibility is now tied to GSTR-2B — a system-generated statement showing all invoices your suppliers have reported against your GSTIN in their GSTR-1 filings. If a supplier files on time with your GSTIN correctly, the invoice appears in your GSTR-2B and you can claim the credit. If they don't file, the credit simply doesn't appear — and you cannot claim it safely, even with the invoice in your records.
Your job before filing GSTR-3B each month is to match every purchase invoice in your books against GSTR-2B. Claiming ITC not in GSTR-2B invites a notice; missing ITC that is there means leaving money in the system. Clean monthly books are a prerequisite — you can't reconcile invoices you haven't recorded.
When ITC gets reversed
ITC claimed today can be taken back later if certain conditions aren't met:
- 180-day rule: If you don't pay your supplier within 180 days of the invoice date, you must reverse the ITC. Once you pay, you can re-claim it. This catches businesses with long creditor cycles.
- Rule 42/43 reversal: If you make both taxable and exempt supplies, ITC attributable to exempt supplies must be reversed proportionately.
- GSTR-2B discrepancies: If a prior ITC claim no longer appears in GSTR-2B because your supplier amended their filing, the department may demand reversal with interest.
- Capital goods for exempt use: Partial reversal required under Rule 43 for capital goods used in exempt or personal purposes.
Rule of thumb: Always reconcile GSTR-2B before claiming, always pay suppliers within 180 days where possible, and flag any mixed-use purchases to your accountant before the filing date.
Frequently asked questions
Can I claim ITC on capital goods like machinery?
Yes. ITC on capital goods is fully claimable in the year of purchase, provided the goods are used for taxable supplies. If they're also used for exempt supplies, a proportionate reversal under Rule 43 applies.
What if my supplier doesn't file their GSTR-1?
The invoice won't appear in your GSTR-2B. You can follow up with the supplier. Claiming ITC that isn't in GSTR-2B exposes you to a notice and potential disallowance.
Can I claim ITC on office rent?
Yes, if you're using the premises for your taxable business and your landlord is GST-registered and provides a proper invoice. Rent ITC is eligible and commonly missed.
Is ITC available on exports?
Yes. Exports are zero-rated, so you can claim ITC on inputs used for exported goods or services, and either offset it against domestic liability or claim a cash refund.
What's the deadline to claim ITC for FY 2026–27?
Under Section 16(4), ITC for FY 2026–27 must be claimed by 30 November 2027 — the due date of the October 2027 GSTR-3B — or the date of filing the GSTR-9 annual return for FY 2026–27, whichever is earlier. Don't let invoices sit unclaimed past this window.
Want every rupee of ITC you're entitled to? Our GST team reconciles your purchase invoices against GSTR-2B every month before we file, so you never leave credit on the table and never face an unexpected reversal.
ITC Reconciliation Checklist
The monthly GSTR-2B reconciliation routine that stops you losing input credit.
Let our GST team protect your input tax credit
We reconcile every purchase invoice against GSTR-2B before filing, so you claim every rupee you're owed and never face an unexpected reversal.