Input Tax Credit (ITC) is the backbone of GST—it's what makes GST a true value-added tax. Simply put: if you paid GST on purchases (inputs), you can deduct that amount from the GST you owe on sales (output).
Done right, ITC can save businesses ₹50,000 to ₹2 lakhs annually or more. But most businesses leave money on the table due to:
- Missing invoices from suppliers
- Not reconciling GSTR-2B properly
- Missing the November 30 deadline
- Not understanding ineligible ITC
This complete guide explains ITC eligibility, claiming process, GSTR-2B reconciliation, time limits, and how to recover every rupee of eligible credit.
What is Input Tax Credit (ITC)?
The ITC Formula
You only pay the difference between GST collected and GST paid
📊 Simple Example
ITC Saved: ₹18,000 – This is the power of Input Tax Credit.
Eligibility for Claiming ITC
✓ You Can Claim ITC If ALL Conditions Are Met:
You must have a valid GSTIN. Composition scheme dealers CANNOT claim ITC.
Valid GST invoice from supplier with all mandatory fields (GSTIN, HSN, tax amount, etc.).
You've actually received the goods or services mentioned in the invoice.
Your supplier has filed their GSTR-1 and GSTR-3B, showing your invoice.
You must file GSTR-3B to claim ITC (can't claim if returns are pending).
Inputs must be used for taxable supplies (not for personal use or exempt supplies).
What ITC Can You Claim?
| Expense Type | ITC Eligible? | Notes |
|---|---|---|
| Raw materials | ✓ YES | 100% eligible for manufacturing/trading |
| Capital goods (machinery) | ✓ YES | Full ITC in first year |
| Services (rent, professional fees) | ✓ YES | If used for business |
| Office supplies (stationery) | ✓ YES | Fully eligible |
| Transportation/freight | ✓ YES | For inward/outward goods |
| Works contract services | ✓ YES | Construction, installation, etc. |
| Motor vehicles (cars, bikes) | ❌ NO | Except goods transport vehicles |
| Food & beverages | ❌ NO | Outdoor catering, restaurants for employees |
| Employee welfare (health, recreation) | ❌ NO | Membership, health club, gym |
| Life & health insurance | ❌ NO | Personal insurance not eligible |
| Construction of immovable property | ❌ NO | Except plant & machinery |
| Goods/services for personal use | ❌ NO | Only business use is eligible |
GSTR-2B: Your ITC Statement
GSTR-2B is your auto-populated ITC statement generated by the GST system. It shows all invoices uploaded by your suppliers in their GSTR-1.
Key Points About GSTR-2B
- Generated on 14th of every month (for previous month)
- Read-only document – you can't edit it
- Shows eligible ITC based on supplier filings
- Must reconcile with your purchase register
- Missing invoices? Follow up with supplier to file GSTR-1
How to Claim ITC: Step-by-Step Process
Maintain Proper Invoice Records
Keep all purchase invoices organized (digital/physical). Ensure they have:
- Supplier GSTIN
- Your GSTIN
- Invoice number & date
- HSN/SAC code
- Taxable value, GST rate, and tax amount
Download GSTR-2B (14th of Every Month)
Log in to GST portal → Services → Returns → GSTR-2B → Select month → Download
This shows all ITC available to you based on supplier uploads.
Reconcile GSTR-2B with Purchase Register
Compare GSTR-2B with your actual purchases:
- Match found? ITC can be claimed
- Invoice missing in GSTR-2B? Supplier hasn't filed GSTR-1 – follow up immediately
- Extra invoice in GSTR-2B? You didn't record it – update your books
Claim ITC in GSTR-3B
When filing GSTR-3B (by 20th of next month):
- Go to Table 4 (Eligible ITC)
- Enter ITC from GSTR-2B (split by IGST/CGST/SGST)
- ITC automatically reduces your tax liability in Table 3.1
Pay Net GST Liability
After claiming ITC, pay only the balance:
Net Payable = Output Tax - ITC
Time Limit for Claiming ITC – Critical Deadline
⚠️ November 30 Deadline
You can claim ITC up to November 30 of the following financial year OR date of filing annual return—whichever is earlier.
Example: For FY 2025-26 purchases, last date to claim ITC is November 30, 2026.
After this date, you LOSE the ITC forever—even if it was eligible.
Common ITC Mistakes to Avoid
❌ Mistake 1: Not Reconciling GSTR-2B
Problem: Blindly claiming ITC without checking if invoices are in GSTR-2B.
Result: Department disallows ITC during audit + interest + penalty.
❌ Mistake 2: Missing the November 30 Deadline
Problem: Forgot to claim ITC for old invoices.
Result: Permanent loss of ITC (no refund, no carry forward).
❌ Mistake 3: Claiming ITC on Ineligible Expenses
Problem: Claimed ITC on motor vehicles, food, or personal expenses.
Result: Demand notice + 100% tax + 100% penalty + interest (18% per annum).
❌ Mistake 4: Not Following Up with Suppliers
Problem: Supplier didn't file GSTR-1, so your invoice is missing from GSTR-2B.
Result: You can't claim ITC even though you paid GST.
❌ Mistake 5: Claiming ITC Before Receiving Goods
Problem: Claimed ITC on invoice before delivery.
Result: ITC disallowed (receipt of goods is mandatory).
How to Maximize ITC Recovery
✓ Pro Tips
- Monthly reconciliation: Check GSTR-2B on 14th, reconcile immediately, claim by 20th
- Supplier follow-up system: Create a list of suppliers who haven't filed GSTR-1. Send monthly reminders.
- Invoice checklist: Verify all invoices have GSTIN, HSN, tax breakup before paying
- Digital record-keeping: Use Tally/QuickBooks to auto-match invoices with GSTR-2B
- Year-end ITC review: By October, check all FY purchases and claim pending ITC before Nov 30 deadline
- ITC reversal rules: If you use inputs for exempt supplies, reverse proportionate ITC
What If Supplier Doesn't File GSTR-1?
You have 3 options:
- Follow up aggressively: Call/email supplier to file GSTR-1 immediately
- Withhold payment: Make GSTR-1 filing a payment condition in future
- Switch suppliers: Work with GST-compliant vendors who file returns on time
⚠️ Important Rule
You cannot claim ITC if the supplier hasn't uploaded the invoice in their GSTR-1. Even if you have a physical invoice and paid GST, without GSTR-1 entry, no ITC for you.
ITC Reversal: When Must You Return ITC?
In certain situations, you must reverse (return) ITC you've already claimed:
- Non-payment to supplier within 180 days: If you haven't paid supplier within 180 days of invoice, reverse ITC (can reclaim once paid)
- Goods/services used for exempt supplies: Proportionate ITC must be reversed
- Capital goods sold within 5 years: Proportionate ITC reversal on sale
- Supplier cancels GSTIN: ITC claimed from that supplier must be reversed
Frequently Asked Questions
Q1: Can I claim ITC if I'm under composition scheme?
A: No. Composition scheme dealers cannot claim any ITC. That's the trade-off for lower tax rates.
Q2: What if I discover missed ITC after November 30 deadline?
A: Unfortunately, you've lost it permanently. No provision to claim after deadline.
Q3: Can I claim ITC on GST paid for business promotion (ads, marketing)?
A: Yes, 100% eligible as it's for business purposes.
Q4: What if GSTR-2B shows invoice but I haven't received goods yet?
A: Don't claim ITC yet. Receipt of goods is mandatory. Claim only after delivery.
Q5: How to claim ITC on import of goods?
A: Import IGST is auto-populated in GSTR-2B via ICEGATE data. Claim normally in GSTR-3B Table 4.
Final Checklist for Maximum ITC Recovery
Monthly ITC Checklist
Download GSTR-2B, start reconciliation
Identify missing invoices, contact suppliers
Finalize ITC amount, prepare GSTR-3B
File GSTR-3B with maximum eligible ITC claimed
Review entire FY, identify any pending ITC, claim before Nov 30
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