Input tax credit (ITC) under GST and eligibility checker

Last reviewed: October 2026

What is input tax credit? ITC full form and meaning in GST

ITC stands for Input Tax Credit. In GST it means the tax you paid on goods or services bought for your business, which you set off against the tax you collect on your own sales, so that GST falls only on the value each business adds.

In the CGST Act 2017, input is goods other than capital goods used or intended to be used in the course or furtherance of business (section 2(59)); an input service is a service so used (section 2(60)); capital goods are goods capitalised in your books and used in the business (section 2(19)); input tax is the GST charged to you, including IGST on imports and reverse charge tax but not composition tax (section 2(62)); and input tax credit is the credit of that input tax (section 2(63)).

A worked example in rupees

Shree Furniture, a registered trader in Nagpur, buys plywood and fittings for ₹2,00,000 plus GST at 18%, and sells the finished furniture to a hotel for ₹3,00,000 plus GST at 18%.

₹18,000 is exactly 18% of the ₹1,00,000 value Shree Furniture added. Without ITC it would pay ₹54,000 and carry the ₹36,000 it paid its supplier as a cost: tax on tax. The GST calculator checks the split on your own invoices.

How to use the ITC eligibility checker

1. Pick what you boughtUnder "What did you buy?", choose the closest item in "Purchase", for example "Car, SUV or van for owners, directors or staff (up to 13 seats including the driver)" or "Rent of an office, shop, warehouse or factory".
2. Answer the carve-outsFor blocked items the checker lists the exceptions under "Does any of these apply?", for example dealing in such vehicles or a law that requires you to provide the benefit to employees. Tick any that apply. For capital goods, tick "Depreciation is claimed on the GST part of its cost" if it is.
3. Say what it is used forUnder "What is it used for?", choose "Taxable sales (incl. exports)", "Taxable and exempt", "Only exempt sales", "Partly personal" or "Personal use". For partly personal use, enter the "Business share (%)".
4. Check the conditionsUnder "Conditions", answer Yes, No or Not sure for "I have the tax invoice or debit note", "It is in my GSTR-2B", "I have received the goods or services", "Supplier has filed the return and paid the tax" and "I have paid, or will pay, the supplier within 180 days".
5. Enter the invoice dateThe "Invoice date" sets the last date to claim under section 16(4) and the 180-day payment date.
6. Read the verdictThe result shows a labelled seal (Eligible, Partly eligible, Not yet or Blocked), the reasons with the section of law, the "Last date to claim" and "What to do", including where to report it in GSTR-3B Table 4.

Who can claim ITC

• Regular registered taxpayers, including exporters and suppliers to SEZs, whose zero-rated supplies keep full credit (section 16, IGST Act).
• Not composition taxpayers (section 10(4)), and no one can claim on purchases from them (section 17(5)(e)).
• Not unregistered persons. On registering within 30 days of becoming liable you can claim ITC on stock held the day before (section 18(1)(a)).
• Non-resident taxable persons only on goods they import (section 17(5)(f)).
• Banks and financial institutions may instead take 50% of eligible ITC each month and let the rest lapse (section 17(4)).

Check that a supplier's GSTIN is active and regular, not composition or cancelled, with the GSTIN checker.

Conditions for claiming ITC: section 16(2)

Section 16(1) gives a registered person credit of input tax on supplies used or intended to be used in the course or furtherance of business. Section 16(2) allows it only if every condition below is met.

GSTR-2B, GSTR-2A and the Invoice Management System (IMS)

Your credit now depends on what your suppliers report. Three portal views show it, and only one decides the claim.

How IMS works

• Since the October 2024 tax period, every invoice, debit note and credit note your suppliers report lands in IMS. You accept, reject or keep it pending.
• Accepted records, and records left without action (deemed accepted), go into GSTR-2B. Rejected records do not. Pending records wait for a later month.
• From the October 2025 tax period, credit notes can be kept pending for only one tax period, and you can declare how much ITC you actually took and are reversing on a record, in full or in part.
• Since 1 October 2025 a supplier's credit note reduces its output tax only once you, the registered recipient, have reversed the credit (proviso to section 34(2)). Accepting it in IMS does that. See the credit note guide.

Is GSTR-2B still generated automatically?

Yes. GSTN confirmed in October 2025 that GSTR-2B continues to be generated on the 14th whatever you do in IMS; acting in IMS afterwards lets you regenerate it before filing GSTR-3B.

Time limit to claim ITC: section 16(4), 16(5) and 16(6)

You cannot take ITC on an invoice or debit note after 30 November following the end of the financial year to which it pertains, or after you file the annual return for that year, whichever is earlier (section 16(4), as amended from 1 October 2022). A debit note counts from its own date, not the date of the original invoice.

• Reverse charge from unregistered suppliers. The relevant year is the one in which you issue the invoice under section 31(3)(f), not the year of the supply (Circular 211/5/2024-GST). Issuing it late still costs interest, and may attract a penalty under section 122.
• Old years. Section 16(5), inserted by the Finance (No. 2) Act 2024 with effect from 1 July 2017, treats credit for 2017-18 to 2020-21 taken in any GSTR-3B filed up to 30 November 2021 as in time. Section 16(6) covers credit after a cancelled registration is revoked.
• Re-availed credit reversed for non-payment is not subject to section 16(4) (rule 37(4)).

Pay your supplier within 180 days, and make sure your supplier pays the tax

Rule 37: you have not paid the supplier

If you do not pay the supplier the value and tax within 180 days from the invoice date, reverse the ITC in proportion to the unpaid amount, with interest under section 50, in the GSTR-3B for the tax period immediately after the 180 days (rule 37(1), from 1 October 2022). When you pay, take it again (rule 37(2)). Reverse charge supplies and Schedule I supplies without consideration are outside the rule.

Rule 37A: your supplier has not filed GSTR-3B

Credit reaches your GSTR-2B when the supplier files GSTR-1, but the supplier may never file the GSTR-3B that pays the tax. If it has not filed by 30 September following the financial year in which you took the credit, reverse it in a GSTR-3B filed by 30 November, or pay it with interest (rule 37A). Take it back when the supplier files. For credit taken in 2025-26: 30 September 2026 and 30 November 2026.

Blocked credits under GST: section 17(5) in full

Section 17(5) lists purchases with no ITC even when used for business and every section 16 condition is met. Most clauses have carve-outs; the checker above asks about each.

The two carve-outs that matter most

• Employer obligation. Credit is allowed where a law obliges the employer to provide the goods or services to employees. Circular 172/04/2022-GST says this proviso covers the whole of clause (b), so a canteen the Factories Act requires can qualify. A benefit given only under the employment contract or company policy does not.
• Same category or composite supply. A caterer buying food for an event it supplies, or a tour operator buying meals for a taxable package, keeps the credit.

Construction after Safari Retreats and the Finance Act 2025

On 3 October 2024 the Supreme Court held in Safari Retreats that clause (d) said "plant or machinery", so a building essential to the business could be "plant" (a functionality test), opening ITC for malls built to rent out. The Finance Act 2025 replaced the words with "plant and machinery" with effect from 1 July 2017, with an Explanation (in force 1 October 2025) overriding any judgment. That term excludes land, buildings and civil structures, so GST on constructing a building for your own business, even one you let out, is blocked. Machinery foundations and supports remain eligible.

"Construction" includes reconstruction, renovation, additions, alterations and repairs to the extent of capitalisation. Painting or repairs charged to profit and loss are ordinary input services.

Partly exempt or partly personal: section 17(1)-(2), rules 42 and 43

Only the business share of a purchase is credit (section 17(1)), and only the share for taxable supplies, including zero-rated exports (section 17(2)). Exempt supplies include sale of land, transactions in securities and, in most cases, sale of a completed building (section 17(3)). Rule 42 splits inputs and input services every month; rule 43 splits capital goods.

Rule 42 worked example

A Pune dealer sells taxable electrical goods and some exempt goods. In the month: input tax on all purchases ₹1,00,000; exempt turnover ₹6,00,000; total turnover in the State ₹30,00,000. Some common inputs, such as the office internet line, are also used by the owner personally.

So ₹27,500 of the ₹1,00,000 is not credit: T1, T2, T3, D1 and D2. After the year, recompute D1 and D2 on the full-year turnover and pay any shortfall, with interest from 1 April of the next year, or take back any excess, by the return for September following the year (rule 42(2)).

Rule 43: capital goods in common use

Capital goods used only for exempt or non-business purposes give no credit; those used only for taxable supplies give full credit. For goods in common use, you take the full GST up front and then reverse a share every month for a useful life of five years. A machine with IGST of ₹1,80,000 gives Tm = ₹1,80,000 ÷ 60 = ₹3,000 a month; with exempt turnover at 20%, Te = ₹600 is reversed each month while the ratio holds.

Report the rule 42 and 43 reversals, and blocked credit, in GSTR-3B Table 4(B)(1).

ITC reversal: when you must give credit back

Interest on wrongly availed ITC

Interest is due only on ITC that is wrongly availed and utilised (section 50(3), substituted with effect from 1 July 2017). The notified rate is 18% a year. Credit is treated as utilised when the balance in your electronic credit ledger falls below the wrongly availed amount, and interest runs from that date until you reverse it or pay the tax (rule 88B(3)). Example: ₹50,000 wrongly taken, used to pay tax and reversed 100 days later costs ₹50,000 × 18% × 100 ÷ 365 = ₹2,466. If the credit sat unused in the ledger, reversing it costs no interest.

ITC on capital goods

• Full credit at once, in the month the goods arrive, if the conditions are met.
• ITC or depreciation on the GST part, not both (section 16(3)). If you take the credit, capitalise the asset net of GST.
• Common use: reverse a monthly share for five years (rule 43).
• Selling the asset: pay the higher of the tax on the sale price and the remaining credit (section 18(6), rule 44(6)).
• Job work: credit stays on inputs and capital goods sent to a job worker; inputs not back within one year, or capital goods within three, are treated as supplied to the job worker (section 19).

Example of a sale. A machine bought on 1 April 2025 with GST of ₹1,80,000 is sold on 15 October 2026 for ₹6,00,000 plus 18% GST (₹1,08,000). As we read rule 44(6) with rule 44(1)(b), the credit for the remaining life is ₹1,80,000 × 41 ÷ 60 = ₹1,23,000 (41 of the 60 months of useful life remain, ignoring the part month). The higher figure, ₹1,23,000, is payable: ₹1,08,000 on the invoice and the ₹15,000 difference as additional output tax.

ITC in special cases: section 18

None of the section 18(1) claims is allowed for a supply received more than one year before the invoice date (section 18(2)).

ITC on reverse charge, imports and through an Input Service Distributor

Reverse charge

Tax you pay as the recipient under reverse charge (goods transport agency freight at 5%, an advocate's fees, sponsorship, imported services) is input tax (section 2(62)). Pay it in cash, because the credit ledger pays only output tax, which excludes reverse charge tax (sections 2(82) and 49(4)). Then claim it in the same GSTR-3B, Table 4(A)(3), or 4(A)(2) for imported services. The 180-day rule does not apply.

Imports of goods

IGST paid on the bill of entry is input tax, and the bill of entry is the document for the credit (rule 36(1)(d)). The data flows from ICEGATE into GSTR-2B and Table 4(A)(1). Basic customs duty and social welfare surcharge are not GST and stay a cost.

Input Service Distributor (ISD)

From 1 April 2025 an office that receives invoices for input services, including reverse charge services, for other registrations of the same business (distinct persons under section 25) must register as an ISD and distribute the credit (sections 2(61) and 20, as amended by the Finance Act 2024). Example: a Mumbai head office pays for audit and software used by branches in Gujarat and Karnataka. The branches see the ISD invoices in GSTR-2B and claim them in Table 4(A)(4); credit is shared by turnover among the units that use the service (rule 39).

Using ITC: electronic credit ledger and the order of set-off

The net ITC in GSTR-3B Table 4(C) is credited to your electronic credit ledger (section 41, section 49(2)). It can pay only output tax, not interest, late fees or penalties, which go through the cash ledger. The order of use is fixed:

1. IGST credit first, against IGST, then against CGST and SGST (or UTGST) in any order and any proportion (section 49(5)(a), section 49A, rule 88A).
2. CGST credit: against CGST, then IGST. Never against SGST.
3. SGST credit: against SGST, then IGST (only once CGST credit is exhausted for IGST). Never against CGST.

Why the order matters. A Pune business owes IGST ₹40,000, CGST ₹54,000 and SGST ₹54,000 for the month (₹1,48,000) and has credit of IGST ₹1,00,000, CGST ₹20,000 and SGST ₹20,000 (₹1,40,000).

Pushing all the leftover IGST credit to CGST costs ₹20,000 more in cash and strands CGST credit that cannot pay SGST.

How to claim ITC in GSTR-3B: Table 4

GSTR-3B Table 4 auto-fills from GSTR-2B, eligible and ineligible together, and you then take out what is not available. Circular 170/02/2022-GST sets out what goes where.

Blocked credit goes in 4(B)(1), not 4(D): the circular says so in terms. Keeping the net in 4(C) clean matters because whatever is in 4(C) is credited to your ledger and treated as availed.

GST rate changes of 22 September 2025 and your ITC

On the 56th GST Council's recommendation, most goods and services moved to two rates, 5% and 18%, with a 40% rate for a few goods and services, from 22 September 2025. The Ministry of Finance FAQs of 3 September 2025 answer the ITC questions:

• Stock bought at the old rate. Tax correctly charged at the rate in force when you bought stays creditable, and ledger credit can pay tax at the new rate.
• Output now exempt. For exempt supplies from 22 September 2025, the related credit must be reversed (section 17(2), rules 42 and 43, or section 18(4) if all supplies become exempt).
• No refund for a rate cut alone. An inverted duty refund needs inputs taxed higher than outputs; the same goods taxed differently at different times do not qualify (Circular 135/05/2020-GST).
• 5% without ITC. Hotel rooms up to ₹7,500 a day and beauty and fitness services (salons, gyms, yoga) are taxed at 5% without ITC; passenger transport and goods transport agencies may choose 5% without ITC or 18% with ITC.
• Insurance. Individual life and health policies became exempt, so they carry no GST to claim.

Refunds of unused credit are allowed only for zero-rated supplies without payment of tax (exports or SEZ supplies under a letter of undertaking) and for an inverted duty structure (section 54(3)). Since late 2025 CBIC grants 90% provisionally on a risk-based check; the Finance Act 2026 writes this into section 54(6) for inverted duty, so check its commencement before relying on the new wording.

Common ITC mistakes

• Claiming from the purchase register instead of GSTR-2B. Reconcile your bills with GSTR-2B every month before filing GSTR-3B.
• Leaving blocked credit in the net. Car repairs, staff lunches and festival gifts come into GSTR-2B like any other invoice; reverse them in Table 4(B)(1).
• Claiming GST on an out-of-State hotel or event. A hotel in Goa charges Goa CGST and SGST; a Maharashtra registration cannot use it. It belongs in 4(D)(2).
• Forgetting the 180 days. Track payment dates by supplier.
• Taking depreciation on the GST part of an asset and claiming the credit as well (section 16(3)).
• Missing 30 November. Unclaimed credit for last year is lost after that; review GSTR-2B for missed invoices in September and October.
• Not checking the supplier. Credit from a cancelled, composition or non-filing supplier is not available or will be reversed later; check the GSTIN before you pay.
• Wrong HSN or rate on the purchase invoice. Check codes with the HSN code finder and ask for a corrected invoice or debit note.

Key terms

Input tax credit (ITC)

Credit of GST paid on business purchases, set off against GST on sales (section 2(63)).

Input tax

GST charged to a registered person, including IGST on imports and reverse charge tax, but not composition tax (section 2(62)).

Capital goods

Goods whose value is capitalised in the books and which are used in the business (section 2(19)).

Blocked credit

GST on purchases listed in section 17(5), on which ITC is not available even for business use.

GSTR-2B

Fixed monthly statement of the ITC available to you, generated on the 14th.

Invoice Management System (IMS)

Portal screen, since October 2024, where you accept, reject or keep pending each supplier document.

Electronic credit ledger

Portal ledger holding your net ITC from GSTR-3B Table 4(C), used to pay output tax.

Reverse charge mechanism (RCM)

The recipient, not the supplier, pays the GST, in cash, and may then claim it as ITC.

Input Service Distributor (ISD)

An office that receives invoices for services used by other registrations of the same business and distributes the credit; mandatory from 1 April 2025.

Plant and machinery

Machinery and equipment fixed to earth by foundations or supports, including them; excludes land, buildings, civil structures, telecom towers and pipelines outside the factory.

Inverted duty structure

Inputs taxed at a higher rate than the output, which can build up credit that may be refunded under section 54(3).

Common credit

Input tax on purchases used for both taxable and exempt (or non-business) purposes, split under rules 42 and 43.

Questions people ask