What is Input Tax Credit?

Also called: ITC

Input tax credit is the GST you paid on business purchases, which you set off against the GST you collect on sales so that tax applies only to the value you added.

Four conditions must all hold under section 16: you hold a tax invoice, you have received the goods or services, your supplier has actually paid the tax to the government, and they have filed their return.

The third and fourth are the difficult ones, because they depend on somebody else. Credit appears in your GSTR-2B only once the supplier files their GSTR-1.

Why it matters

A supplier who does not file their returns costs you real money — their unpaid tax becomes your blocked credit, and you have no way to force them.

A worked example

A manufacturer buys raw material for ₹1,00,000 plus 18% GST and sells the finished goods for ₹1,50,000 plus 18% GST.

Illustrative figures. Your own numbers will differ — that is what the quote is for.
GST paid on purchases	₹18,000
GST collected on sales	₹27,000
Input credit available if the supplier filed	₹18,000
Net cash payable	₹9,000
Cash payable if the supplier did not file	₹27,000

The whole ₹18,000 turns on whether the supplier reported the invoice, because credit is restricted to what appears in GSTR-2B. A supplier who files late is holding ₹18,000 of your working capital.

The statutory position

Each figure with the provision it comes from, so it can be checked.
What	Position	Source
Conditions for claiming credit	Invoice held, goods or services received, tax paid to government, return filed	Section 16(2), CGST Act 2017
Credit restricted to GSTR-2B	Only invoices appearing in the auto-generated statement	Section 16(2)(aa) read with Rule 36(4)
Deadline to claim	30 November following the financial year, or the annual return date if earlier	Section 16(4), CGST Act 2017
Payment to supplier within 180 days	Credit reversed with interest if not paid	Section 16(2), second proviso
Interest on credit wrongly availed and utilised	24% per annum	Section 50(3), CGST Act 2017

Not to be confused with

These get used interchangeably, including by tools that should know better. They are different things.

Blocked credit

Section 17(5) lists things credit can never be claimed on however correctly documented — motor vehicles, food and beverages, membership of clubs, works contract for immovable property. These are not a timing problem; the credit simply does not exist.

Refund

Input credit is set off against output tax. A refund is cash paid back, available only in specific situations such as exports or an inverted duty structure.

Questions people ask

My supplier has not filed. Can I still claim?

No. Since the 2021 amendment, credit is limited to what appears in GSTR-2B, so an unreported invoice cannot be claimed in that month. It becomes available when the supplier files — provided that happens before the section 16(4) deadline of 30 November following the financial year.

What is the 180-day rule?

Credit claimed on an invoice you have not paid within 180 days must be reversed with interest, and can be reclaimed once payment is made. It exists to stop credit being taken on invoices that are never settled.

What usually goes wrong

Claiming credit from the purchase register instead of GSTR-2B
Claiming on blocked items under section 17(5), particularly staff welfare and vehicles
Missing the 30 November deadline, after which the credit is lost permanently
Ignoring the 180-day reversal on invoices left unpaid to suppliers
Not reversing the proportion of credit attributable to exempt supplies under Rule 42