Input Tax Credit (ITC) in GST: Conditions, Examples and How to Claim (2026)

Every GST-registered shop pays GST twice in a sense: once to its suppliers when it buys stock, and once to the government on what it sells. Input tax credit, or ITC, is what stops that from being double taxation. The GST you paid on your purchases is set off against the GST you collected on your sales, and you pay only the difference. For most traders, it is the single biggest number in the monthly return.

It is also the number most often lost. A credit can disappear because a supplier filed late, because a bill was not paid within 180 days, because the item was on the blocked list, or because the claim was made after the deadline. This guide explains how input tax credit in GST works, the conditions you must meet before claiming it, what is blocked, the order in which credit is used, and a month-end routine that keeps it safe, with worked examples in rupees.

What is input tax credit in GST?

GST is charged at every stage of a sale, but it is meant to be a tax on the value added at each stage, not on the full price again and again. Input tax credit is the mechanism that makes this work.

• Output tax is the GST you charge customers on your sales.
• Input tax is the GST you paid suppliers on goods and services you use in your business.
• GST payable for the period is output tax minus eligible input tax credit.

A worked example, for a shop that buys and sells goods at 18%:

With credit, the shop pays tax only on its own value addition: 18% of ₹20,000, which is ₹3,600. If you need the arithmetic behind these figures, our guide on how to calculate GST works through it step by step.

Credit is available on inputs (stock and materials), input services (rent, transport, telephone, accountancy) and capital goods (machinery, computers, counters), as long as they are used in the course of business and are not on the blocked list.

Who can claim input tax credit?

Only a person registered under GST as a regular taxpayer can claim ITC. Three groups cannot:

• Unregistered businesses. If you are below the GST registration limit and have not registered, the GST on your purchases is simply a cost.
• Composition dealers. The composition scheme trades a low flat rate on turnover for giving up input tax credit entirely. Our guide to the GST composition scheme shows when that trade is worth it.

ITC when you first register. Under Section 18(1), a business that registers can claim credit on the stock it holds on the day before registration, provided it has the purchase invoices. The claim is made in form ITC-01 within 30 days of becoming eligible.

The conditions to claim ITC (Section 16)

Section 16(2) of the CGST Act sets the conditions, and all of them must hold for each invoice. Missing one is enough to lose the credit.

A few further rules sit alongside these:

• Goods received in lots. When an invoice is delivered in instalments, the credit is available only when the last lot arrives.
• No double benefit on capital goods. If you claim depreciation on the tax part of a capital good for income tax, you cannot also claim ITC on it.
• Business use only. Credit is for goods and services used or intended to be used in your business.

GSTR-2B is now the rule, not a guide

Under Rule 36(4), since 1 January 2022 you can claim credit only to the extent it appears in your GSTR-2B, the monthly auto-generated statement of purchases your suppliers have reported. The old allowance that let businesses claim an extra 20%, then 10%, then 5% on top of what suppliers had uploaded is gone.

In practice, your supplier's filing decides your credit. An invoice uploaded late is claimed in the month it appears in GSTR-2B; one never uploaded cannot be claimed at all.

The Invoice Management System (IMS)

Since October 2024, the GST portal has an Invoice Management System. Each invoice your suppliers report appears there, and you can accept it, reject it, or keep it pending. Accepted invoices flow into your GSTR-2B; rejected ones do not; pending ones can be carried forward to a later month.

The useful habit: before GSTR-2B is generated each month, accept the invoices you have genuinely received and reject anything you do not recognise. A wrong invoice is far easier to fix here than after the credit is claimed.

The 180-day payment rule

Credit is given on the understanding that you will pay your supplier. Rule 37 enforces that: if you do not pay the supplier the value of the supply plus the tax within 180 days of the invoice date, you must reverse the credit in proportion to the amount unpaid, with interest, in your GSTR-3B.

Example: you buy goods worth ₹1,00,000 plus ₹18,000 GST, an invoice of ₹1,18,000. By day 180 you have paid ₹59,000, half the invoice.

The reversed ₹9,000 is not lost for good. Once you pay the balance, you can re-claim it, and the normal time limit does not apply to that re-claim. The rule does not apply to tax paid under reverse charge.

Time limit for claiming ITC

Under Section 16(4), the credit on an invoice must be claimed by the earlier of:

• 30 November following the end of the financial year to which the invoice belongs, or
• the date you file your annual return (GSTR-9) for that year.

So an invoice dated 15 February 2026 (financial year 2025-26) must be claimed by 30 November 2026, or earlier if you file GSTR-9 for 2025-26 before that date. A credit not claimed by then is lost, even if every other condition was met.

A supplier who reports a 2025-26 invoice only in December 2026 has cost you that credit.

Blocked credits: Section 17(5)

Some purchases never give input tax credit, whatever the paperwork. Section 17(5) lists them. The ones a shop or small business is most likely to meet:

Exempt supplies. If you sell both taxable and exempt goods, the credit on common purchases has to be split, and the share relating to exempt sales reversed under Rules 42 and 43. A shop selling mostly taxable goods with a few exempt lines should ask its accountant to work out the proportion.

How input tax credit is used: the utilisation order

Credit sits in your electronic credit ledger under three heads: IGST, CGST and SGST (or UTGST). It cannot be used in any order you like. Sections 49 and 49A, read with Rule 88A, set the order:

Two rules matter most. IGST credit must be used up first, and CGST credit can never pay SGST, nor SGST credit pay CGST. Our guide to the difference between CGST, SGST and IGST explains why the three heads exist.

A worked example

A shop has these figures for the month:

1. IGST credit first, against IGST. ₹10,000 of the ₹14,000 pays the IGST liability in full. ₹4,000 of IGST credit is left.
2. The remaining IGST credit against CGST and SGST. Say ₹2,000 goes to each. CGST liability falls to ₹4,000 and SGST to ₹4,000.
3. CGST credit against CGST. ₹3,000 brings CGST down to ₹1,000, paid in cash.
4. SGST credit against SGST. ₹2,000 brings SGST down to ₹2,000, paid in cash.

The total cash payment is ₹22,000 − ₹19,000 = ₹3,000. The portal works out the set-off in GSTR-3B; knowing the order explains why a large CGST credit cannot reduce an SGST bill.

The 1% cash rule for larger businesses

Rule 86B applies to businesses whose taxable supplies exceed ₹50 lakh in a month. They cannot pay more than 99% of their output tax from credit: at least 1% has to be paid in cash. There are exceptions, such as businesses that paid more than ₹1 lakh of income tax in each of the last two years, those receiving certain refunds, and government bodies and public sector undertakings. Most small shops are well below the threshold.

How to claim ITC in GSTR-3B

Input tax credit is claimed in your monthly or quarterly GSTR-3B return.

1. Act on IMS. Accept, reject or keep pending the invoices your suppliers have reported.
2. Check GSTR-2B. Once it is generated for the period, compare it with your own purchase register. Note invoices missing from it and follow up with those suppliers.
3. Open GSTR-3B. Table 4 (eligible ITC) is auto-populated from GSTR-2B.
4. Review and adjust. Remove anything blocked under Section 17(5), and enter reversals, such as unpaid bills past 180 days or credit relating to exempt supplies, in the reversal rows of Table 4.
5. Offset and file. The portal sets the credit against your liability in the utilisation order; pay any balance in cash and file with OTP or digital signature.

Your own sales side matters here too. The liability in Table 3 of GSTR-3B is auto-filled from your GSTR-1, and from the July 2025 return period this auto-filled figure is locked, so corrections are made by amending GSTR-1 through GSTR-1A rather than by editing GSTR-3B. Our guide on how to file GSTR-1 covers that return.

A month-end ITC routine for a small shop

A short routine each month protects most of your credit:

• Insist on a GST invoice with your GSTIN for every business purchase. A cash memo or an invoice without your GSTIN gives no credit. Check a new supplier's GSTIN is valid and active before you start buying; our guide to GST number search shows how.
• Act on IMS and match GSTR-2B against your purchase register before filing.
• Chase suppliers who have not filed. Their late GSTR-1 delays or kills your credit.
• Pay suppliers within 180 days, or plan for the reversal if you cannot.
• Keep blocked items out of your claim: staff food, cars, personal purchases, gifts.
• Claim within the time limit, and do a final sweep of the year's missing invoices before 30 November.
• Keep invoices and payment proof for at least six years from the annual return due date, the period the law requires.

Where BillZap fits in

Input tax credit is about your purchases. BillZap is a free GST billing app for Android built for the sales side, and it is honest to say what that means:

• It makes proper GST tax invoices with your GSTIN and your buyer's, HSN codes, and CGST and SGST or IGST worked out from the place of supply. That is what lets your business customers claim input tax credit on what they buy from you.
• Their claim depends on your invoices reaching their GSTR-2B, so BillZap gives you a GSTR-1 ready export to file your sales on time.
• It works offline, needs no sign-up and has no paid tier.

BillZap does not record purchase bills, read your GSTR-2B or IMS, or calculate your ITC. Track those in your accounting software or with your accountant.

FAQ: input tax credit

The bottom line

Input tax credit turns GST into a tax on the value you add instead of on the full price. It is also conditional: a valid invoice with your GSTIN, a supplier who reports and pays on time, payment within 180 days, nothing from the blocked list, and a claim before the deadline. Miss one, and the credit becomes a cost.

The routine that protects it is short: accept invoices in IMS, match GSTR-2B, chase late suppliers and pay your own on time. And on your sales side, give your buyers clean invoices they can claim on. If you want a free app that makes GST invoices with the right GSTINs and tax split, BillZap is on Google Play. It works offline with no sign-up.

This guide explains input tax credit in plain language and is not tax advice. Eligibility depends on the facts of each purchase, and rules and portal processes change; confirm with your chartered accountant before relying on a figure for a filing.