Input Tax Credit (ITC)

Input Tax Credit (ITC) is the mechanism under GST that allows businesses to reduce their tax liability by claiming credit for GST paid on inputs (goods and services) used for business purposes. This eliminates the cascading effect of taxes.

Conditions for Claiming ITC

• Possession of valid tax invoice or debit note
• Goods/services must be received
• Tax must be paid to the government by supplier
• GST returns must be filed
• Input must be used for business purposes
• ITC must be claimed within the time limit

ITC Time Limit

ITC must be claimed by the earlier of:

• Due date of filing return for September of the following financial year, OR
• Date of filing annual return

Blocked Credits (No ITC Available)

• Motor vehicles (except for specified businesses)
• Food, beverages, outdoor catering
• Beauty treatment, health services
• Club memberships and fitness
• Rent-a-cab, life insurance, health insurance
• Works contract services for construction
• Goods/services for personal consumption

ITC Matching

ITC claimed must match with supplier's outward supply details in GSTR-1. Mismatches can lead to ITC reversal.

ITC Reversal

ITC must be reversed in cases of:

• Non-payment to supplier within 180 days
• Use of inputs for exempt supplies
• Credit note received from supplier
• Goods lost, stolen, or destroyed