Input Tax Credit (ITC) is a mechanism under the GST system that allows registered taxpayers to reduce their output GST liability by claiming credit for the GST paid on purchases made for business purposes.

For example, if your output GST (on sales) is ₹400 and you’ve already paid ₹300 as GST on business purchases (inputs), you can claim ₹300 as ITC, reducing your net tax liability to ₹100.

Who Can Claim ITC?

Anyone registered under GST—like manufacturers, suppliers, agents, e-commerce operators, or aggregators—can claim ITC on business-related purchases, provided they meet the conditions laid out in Section 16 of the CGST Act.

Conditions to Claim ITC

To claim ITC, the following conditions must be fulfilled:

1. You must be a registered taxpayer.
2. You must possess a valid tax invoice, debit note, or another prescribed document.
3. You must have received the goods or services.
4. The supplier must have filed their returns and paid the GST.
5. You must have filed GSTR-3B return.
6. If goods are received in parts/lots, ITC can be claimed only after the final lot is received.
7. Payment to the supplier must be made within 180 days from the invoice date.
8. ITC must be claimed on or before 30th November of the following financial year or the date of filing the annual return, whichever is earlier.
9. ITC cannot be claimed on goods/services used for personal use or non-business purposes.
10. If depreciation is claimed on the GST portion of capital goods, ITC on that GST is not allowed.
11. Provisional ITC (5%) was discontinued from January 2022—only actual ITC reflected in GSTR-2B can be claimed.
12. Common credits must be split between business and personal/exempt supplies.

Items Not Eligible for ITC (Section 17(5) of CGST Act)

ITC cannot be claimed on the following:

• Motor vehicles (unless used for transporting goods or passengers)
• Food and beverages, outdoor catering, beauty treatments, health services
• Club memberships, gym, or fitness services
• Health/life insurance and cab rentals (unless mandatory by law)
• Goods/services used for personal consumption
• Construction of immovable property
• Goods/services under composition scheme
• Lost, stolen, destroyed, gifted, or free sample goods
• Goods/services for corporate social responsibility (CSR)
• Expenses by standalone restaurants charging 5% GST
• Non-resident taxable person purchases (except imports)

Reversal of ITC

You must reverse ITC if:

• Payment is not made to the supplier within 180 days
• Inputs are used for exempt supplies or non-business use
• Goods are sold or disposed of
• You switch from regular to composition scheme
• You claim depreciation on tax component of capital goods
• Supplier fails to pay tax to the government (under Section 41(2))

Reversed ITC is added to your output tax liability, and interest is payable from the date ITC was availed to the date of reversal. There is no time limit to reclaim reversed credit once the issue is resolved.

Claiming ITC Under Reverse Charge Mechanism (RCM)

If you pay GST under RCM, you can claim ITC in the same month, provided:

• The tax is paid in cash
• Goods/services are used for business purposes
• A self-invoice is raised (since the supplier is unregistered)

Important Provisions: Sections 16 & 41

• Section 16(2)(c): ITC is allowed only if the tax has been paid to the government.
• Section 41(2): If the supplier doesn’t pay tax, the recipient must reverse the ITC but can reclaim it once the supplier makes the payment.

ITC Utilization Rules (As of 1st July 2019)

To set off your ITC properly:

1. Use IGST credit first.
2. For CGST liability: use CGST credit first, then IGST.
3. For SGST liability: use SGST credit first, then IGST.
4. You cannot cross-utilize CGST credit against SGST liability or vice versa.