Input Tax Credit Under GST: Conditions, GSTR-2B and Time Limits

Quick answer: Input tax credit under GST lets a registered business deduct the GST it paid on business purchases from the GST it collects on sales. You can claim it only if you hold a valid tax invoice, the invoice shows in your GSTR-2B, you received the goods or services, the supplier paid the tax, you pay the supplier within 180 days, and you claim it by 30 November after the financial year.

Input tax credit, or ITC, is what makes GST a tax on value added rather than a tax on every step of the chain. For a trader or service business, it is often the difference between a healthy margin and a thin one. This guide covers the conditions in section 16 of the CGST Act, how GSTR-2B and the Invoice Management System decide what you can claim, blocked credits, the deadlines that catch people out, and a worked example. If you also issue invoices, the same rules explain why your buyers care so much about a correct GST invoice from you. You can create one in minutes with our free invoice generator.

This article is general information as of 2026, not tax or legal advice. Check the current law on the CBIC and GST portal sites or with a chartered accountant before you file.

What is input tax credit under GST?

Every time you buy goods or services for your business from a registered supplier, the price includes GST: CGST and SGST for a purchase within your state, or IGST for a purchase from another state. When you sell, you collect GST from your customers. ITC lets you set the tax you paid off against the tax you collected, so you pay only the difference in cash.

The credit sits in your electronic credit ledger on the GST portal. It is used in a fixed order: IGST credit first against IGST liability, then against CGST and SGST; CGST credit against CGST and then IGST; SGST credit against SGST and then IGST. CGST credit can never pay SGST, or the other way round. Your filing software or the GSTR-3B offset table handles this order for you.

Only regular taxpayers can claim ITC. A business in the GST composition scheme pays a flat rate on turnover and gets no credit at all, and unregistered businesses cannot claim it either. If you are not yet registered, start with our guide to GST registration in India.

ITC conditions under section 16

Section 16(2) of the CGST Act lists the conditions. You need all of them, not most of them:

1. A valid tax document. You hold a tax invoice or debit note issued by a registered supplier, or another prescribed document such as a bill of entry for imports.
2. The invoice is in your GSTR-2B. Under clause (aa), the supplier must have reported the invoice in GSTR-1 or IFF, and it must have been communicated to you in GSTR-2B.
3. The credit is not restricted. Under clause (ba), the credit must not be flagged as ineligible in GSTR-2B, which happens when the supplier is in default.
4. You received the goods or services. Delivery to a third party on your instruction counts. For goods in lots or instalments, credit is available when the last lot arrives.
5. The supplier paid the tax. The tax charged must actually have been paid to the government, in cash or through the supplier's own credit.
6. You filed your return. You must furnish your return under section 39, which for most businesses is GSTR-3B.

On top of these, the second proviso to section 16(2) requires you to pay the supplier, including the tax, within 180 days of the invoice date, and section 16(4) sets an annual cut-off. Section 16(3) adds one more: you cannot claim depreciation under income tax on the GST component of a capital asset and also take ITC on it. The full text is on the CBIC page for section 16 of the CGST Act.

GSTR-2B and the Invoice Management System

GSTR-2B is the monthly statement that tells you which credit the system will allow. It is built from what your suppliers file, not from your own purchase records. Since October 2024, records first land in the Invoice Management System (IMS), where you can accept, reject or keep each one pending. GSTR-2B is then generated on the 14th of the following month based on those actions, and you can recompute it after changing an action until you file GSTR-3B. Our guide to the GST Invoice Management System walks through the screens.

What to do when an invoice is missing

If a purchase invoice is in your books but not in GSTR-2B, you cannot claim it yet. The usual reasons are that the supplier has not filed GSTR-1, filed it late, typed your GSTIN wrongly, or reported it as a B2C sale. Send the supplier the invoice number, date and value and ask them to correct it. Once it appears in a later GSTR-2B, you claim it in that month's GSTR-3B.

Why your own GSTR-1 matters to your buyers

The same rule works in reverse. If you file GSTR-1 late or get a buyer's GSTIN wrong, your buyer loses credit until you fix it, and that is how payment disputes start. The comparison in GSTR-1 vs GSTR-3B explains which return feeds which.

Blocked credits under section 17(5)

Some purchases never give credit, even with a perfect invoice. The table below summarises the main blocked items in section 17(5) and the most common exceptions.

Blocked item	Common exception
Motor vehicles for up to 13 people, and their insurance, repair and servicing	Vehicles used to resell vehicles, carry passengers, train drivers, or transport goods
Food and beverages, outdoor catering, beauty treatment, health services, cosmetic surgery	Where you buy them to supply the same category onward, or where the law makes them compulsory for employees
Club, health and fitness centre memberships	None for ordinary businesses
Travel benefits to employees on leave or home travel	Where an employer is legally required to provide them
Works contract and goods or services for building immovable property on your own account	Plant and machinery, and supplies for onward works contract services
Goods lost, stolen, destroyed, written off, or given as gifts or free samples	None
Goods or services used for personal consumption	None
Tax paid under a demand for fraud or wilful misstatement	None

Where a purchase is used partly for taxable and partly for exempt or personal use, section 17(1) and (2) and rules 42 and 43 require you to apportion the credit. A business that also sells exempt items and issues a bill of supply for them needs to reverse the share of common credit that relates to those exempt sales.

ITC time limits: 180 days, 30 November and rule 37A

Three deadlines decide whether a valid credit stays valid.

Rule	What it says	What to do
180-day payment rule (section 16(2), rule 37)	If you have not paid the supplier the value plus tax within 180 days of the invoice date, add back the credit with interest	Track unpaid purchase invoices by age; reverse in GSTR-3B; re-claim when you pay
Annual cut-off (section 16(4))	No credit after 30 November following the financial year, or after filing the annual return, whichever is earlier	Claim all FY 2025-26 credit in a GSTR-3B filed by 30 November 2026
Supplier default (rule 37A)	If the supplier has not filed GSTR-3B for the period by 30 September of the following year, reverse the credit	Reverse by 30 November; re-claim once the supplier files and pays

The 180-day rule overlaps with commercial law too. If you buy from a micro or small enterprise, the separate MSME 45-day payment rule affects your income tax deduction, so paying suppliers promptly protects you twice.

How to claim input tax credit step by step

1. Check every purchase invoice when it arrives. Confirm your GSTIN, the supplier's GSTIN, the place of supply, the HSN or SAC code, the rate and the tax split. A three-way match against the purchase order and delivery note catches errors early.
2. Record it in your purchase register with the invoice date and the date you received the goods or services.
3. Act on IMS during the month: accept correct records, reject wrong ones, and keep pending those you are still checking.
4. Download GSTR-2B after the 14th and reconcile it line by line with your register.
5. Remove what you cannot claim: blocked credits, personal use, items not yet received, and invoices unpaid beyond 180 days.
6. Claim the eligible figure in Table 4 of GSTR-3B and report any reversals in the reversal rows.
7. Follow up missing invoices with suppliers and claim them when they appear, before the 30 November cut-off.

Worked example: ITC for one month

A Pune trader registered under the regular scheme has these figures for a month. All purchases and sales are within Maharashtra at 18%, so tax is split equally between CGST and SGST.

Item	Taxable value	GST at stated rate	Claimable now?
Stock purchases, in GSTR-2B	Rs 4,50,000	Rs 81,000	Yes
Office laptop, in GSTR-2B	Rs 60,000	Rs 10,800	Yes (no depreciation on the GST part)
Stock purchase, supplier has not filed GSTR-1	Rs 50,000	Rs 9,000	No, not in GSTR-2B yet
Staff lunch from a restaurant, at 5%	Rs 10,000	Rs 500	No, blocked under section 17(5)
Total GST paid on purchases	Rs 5,70,000	Rs 1,01,300

Eligible ITC this month is Rs 81,000 + Rs 10,800 = Rs 91,800. Sales for the month are Rs 7,00,000, so output tax at 18% is Rs 1,26,000 (Rs 63,000 CGST and Rs 63,000 SGST). The trader pays Rs 1,26,000 minus Rs 91,800 = Rs 34,200 in cash, split Rs 17,100 CGST and Rs 17,100 SGST.

Next month, the late supplier files GSTR-1 and the Rs 9,000 appears in GSTR-2B. The trader claims it then. The Rs 500 on the staff lunch is a cost, not a credit, so it goes into the profit and loss account as part of the expense. If the trader still has not paid the laptop supplier 180 days after the invoice date, the Rs 10,800 must be added back with interest until payment is made.

Want to check your own numbers? Our tax calculator works for GST at any rate, and the tax on each line is easier to verify when your invoices show it clearly.

Input tax credit after GST 2.0

From 22 September 2025, the GST Council's rate rationalisation moved most goods to two main slabs of 5% and 18%, with a 40% rate for a short list of luxury and sin goods, and phased out compensation cess on most items. Our guide to the GST 2.0 new GST rates has the detail. For ITC, three practical effects matter:

• Invoices must show the right rate for the date of supply. A purchase invoice that still charges an old rate after the change is a problem for both sides. Ask for a corrected invoice or a credit note rather than claiming excess credit.
• Inverted duty is more common. Where your inputs now carry a higher rate than your output, credit builds up. Refunds of accumulated credit on inverted duty are claimed through the refund process, subject to the rules for that category.
• Exempt items need reversals. Some goods and services moved to nil or exempt, which means common credit attributable to those sales must be apportioned and reversed.

Common ITC mistakes small businesses make

• Claiming from the purchase register instead of GSTR-2B.
• Claiming CGST and SGST on a purchase that should have been IGST, or the reverse, because the supplier got the place of supply wrong.
• Forgetting to self-invoice and pay tax first on reverse charge purchases. The credit only follows once the tax is paid.
• Treating a car, staff meals or a club fee as eligible because the expense is business related.
• Letting old invoices slip past 30 November, especially those from suppliers who file late.
• Ignoring the 180-day clock on long credit terms.

Create GST invoices your buyers can claim credit on

Input tax credit under GST rewards clean paperwork on both sides: valid invoices, timely GSTR-1 filings and prompt payment. When you sell, give your customers a tax invoice with your GSTIN, theirs, the place of supply, HSN or SAC codes and the tax split, so their credit flows without a chase. Build one free with our GST-ready invoice generator, or start from a clean layout in the corporate invoice template. Every invoice exports as a PDF, so it looks the same on your client's phone, laptop or printer.