If you ask any businessperson what keeps GST tolerable, the answer is simple—Input Tax Credit (ITC). Without ITC, the whole system would collapse under double taxation. But here’s the tricky part: ITC isn’t free for all. You don’t just pay GST on purchases and claim it back like cashback. There are conditions, and if you miss even one, your claim can get rejected.
Let’s walk through all the rules in plain words, with examples you’ll actually relate to.
1. First Rule – You Have to Be Registered
No GST registration, no ITC. That’s the starting point. Even if you’re paying GST on stuff you buy, if you don’t have a GST number, the credit is lost forever.
👉 Think of a trader in Jaipur who buys stock worth ₹80,000 and pays GST on it. Since he’s not registered, that tax is dead money for him. Only when he gets registered does ITC kick in.
2. Keep the Invoice Handy
This one’s basic but often ignored. Without a proper GST invoice (with GSTIN, date, and all), you can’t claim ITC. No paperwork, no credit.
👉 Say you buy office furniture. The supplier adds GST but forgets to give you a proper invoice. Later, when you try to claim ITC, it gets rejected. Why? Because the bill isn’t valid in the GST system.
3. Goods or Services Must Be Received
This is another common mistake. Just having the invoice is not enough. The goods or services should actually reach you.
👉 Example: A manufacturer orders machines in April, gets the invoice, but machines arrive only in May. ITC can be claimed only after May, when delivery is done.
Partial deliveries? Yes, you can claim ITC proportionately.
4. Supplier Must Pay the Tax
Now this one really irritates people. Even if you did everything right—paid GST, got an invoice—if your supplier doesn’t deposit that tax to the government, your ITC gets blocked.
👉 Example: You buy raw material worth ₹1,00,000 and pay ₹18,000 GST. Your supplier happily takes the money but never files his GSTR-1. Guess what? Your ITC won’t reflect in your GSTR-2B. You’ll be stuck until he files. That’s why businesses now chase suppliers more than customers!
5. You Must File Returns
Filing GSTR-3B every month is a must. If you don’t file, ITC can’t be claimed.
👉 Example: A company forgets to file GSTR-3B for April but still claims ITC. System blocks it until they file.
6. Payment Within 180 Days
Here’s a hidden rule many forget. If you don’t pay your supplier (invoice + GST) within 180 days, ITC you claimed earlier has to be reversed. You can reclaim it later when you pay.
👉 Example: You buy goods in January, claim ITC, but don’t pay till August. That’s more than 180 days. Boom—reversal. Only after you pay can you re-claim.
7. Don’t Miss the Time Limit
There’s also a deadline. ITC can’t be carried forever. It must be claimed before the earlier of:
- The September return following the financial year, OR
- The annual return filing date.
👉 Example: Invoice dated Feb 2023. If you miss claiming it by Sept 2023 return, forget it. Gone.
8. Blocked Credits – The Forbidden List
Section 17(5) is like the blacklist. No ITC on:
- Cars and bikes (unless you’re in that business).
- Food, beverages, club memberships.
- Goods/services for personal use.
- Construction of immovable property.
👉 Example: A company buys a new car for the director. GST paid is ₹2,50,000. Sorry, not claimable.
9. ITC on Capital Goods
You can also claim ITC on capital goods—things like machinery. But here’s the catch: if you also claim depreciation on the GST part under income tax, you lose the ITC.
👉 Example: You buy a machine worth ₹10 lakh and pay another ₹1.8 lakh as GST. If you show the machine in your books as ₹11.8 lakh and claim depreciation on the full thing, then ITC of ₹1.8 lakh is gone. You can’t double dip.
10. Reverse Charge Situations
Under RCM, you pay GST directly to the government, not the supplier. But the good news is—you can claim ITC for it (if it’s for business).
👉 Example: A firm hires a lawyer, pays ₹10,000 fees + GST under RCM. They can later claim that GST as ITC.
11. Job Work Cases
Inputs sent to a job worker still qualify for ITC, but goods must return within:
- 1 year (for inputs), or
- 3 years (for capital goods).
👉 Example: A manufacturer sends fabric to a job worker in June 2023. If it doesn’t come back by June 2024, ITC must be reversed.
12. Imports and Exports
Imports are simple: the IGST you pay at customs becomes ITC.
Exports are better: they’re zero-rated. That means you don’t charge GST to your foreign buyer, but you can still claim a refund of all the GST you paid on inputs.
👉 Example: A shirt exporter pays ₹5,00,000 GST on fabric. He exports shirts to the US with no GST. Later, he files for refund and gets that full ₹5,00,000 back.
13. A Few Special Cases
- Banks and NBFCs can only take 50% ITC, even if everything is eligible.
- Goods that are lost, stolen, or given out as free samples? No ITC.
👉 A pharma company sends free medical samples worth ₹50,000. GST paid on those can’t be claimed back.
Real-Life ITC Problems Businesses Face
Here’s where most businesses get stuck:
- Supplier doesn’t file returns.
- Invoice never uploaded in GSTR-1.
- ITC mismatch in GSTR-2B.
- Lost invoices.
- Delayed payments.
👉 Real story: A shopkeeper bought goods worth ₹1,00,000 and claimed ITC. But later the GST department sent him a notice because the supplier never uploaded that invoice. The poor guy had to chase the supplier for weeks to fix it.
Quick Tips to Stay Out of Trouble
- Buy only from suppliers you trust.
- Check your GSTR-2B every month.
- Keep all invoices safe.
- Pay suppliers on time—don’t delay.
- If you’re into exports, don’t sit on refunds. Claim them quickly.
Wrapping Up
Input Tax Credit is like oxygen for GST. It keeps tax from multiplying and killing businesses. But ITC isn’t automatic—it’s conditional. Registered taxpayer, valid invoice, receipt of goods, supplier compliance, timely payment, and careful filing are all musts.
Miss one, and your ITC vanishes. So think of ITC like a deal between you, your supplier, and the government. Everyone has to play their part, or the system breaks.
