Input Tax Credit (ITC)

Input Tax Credit (ITC) is the mechanism under India's Goods and Services Tax that lets a registered taxpayer set off the GST already paid on business inputs against the GST payable on its outward supplies, so tax falls only on the value added at each stage. Claiming it reduces the net cash GST a business must deposit and prevents the cascading of tax through the supply chain.

Legal basis

Eligibility and conditions are governed by Section 16 of the CGST Act, 2017, with apportionment and blocked credits under Section 17 and the order of utilisation under Section 49 (read with Rule 88A). Eligible credit is auto-populated by the GST Network (GSTN) in Form GSTR-2B; GST is administered by the CBIC.

Conditions to claim (Section 16(2))

• Possession of a valid tax invoice or debit note
• The invoice appears in the recipient's GSTR-2B (Rule 36(4))
• Actual receipt of the goods or services
• Tax has been paid to the government by the supplier
• The recipient has filed its return under Section 39 (GSTR-3B)

Reversals and time limit

If the recipient does not pay the supplier the invoice value plus tax within 180 days, the credit must be reversed with interest under Rule 37 and can be re-availed once payment is made. ITC for a financial year must be claimed by 30 November of the following year, or the date of filing the annual return, whichever is earlier (Section 16(4)). Credits blocked under Section 17(5) — such as most motor vehicles, food and beverages, and construction of immovable property — cannot be availed at all.