Input tax credit (ITC) is the mechanism that keeps GST a tax on value addition. It is also the most common source of GST notices, because credit is allowed only when a set of conditions is met — several of which depend on the supplier.
Conditions under section 16
A registered person may claim ITC on goods or services used in the course of business when all of the following are satisfied:
- They hold a tax invoice or debit note (section 16(2)(a)).
- The details of the invoice have been furnished by the supplier in GSTR-1 and communicated in GSTR-2B (section 16(2)(aa), read with rule 36(4)).
- The goods or services have been received (section 16(2)(b)).
- The tax charged has been paid to the government by the supplier (section 16(2)(c)).
- The recipient has filed its own return under section 39 (section 16(2)(d)).
Time limit
ITC for an invoice must be claimed by the earlier of 30 November following the end of the financial year or the date of filing the annual return (section 16(4)).
Payment to the supplier within 180 days
If the recipient does not pay the supplier the value and tax within 180 days of the invoice date, the credit must be reversed with interest. It can be reclaimed when payment is made (second proviso to section 16(2) and rule 37).
Blocked credits
Section 17(5) blocks credit on specified items regardless of business use — for example, most motor vehicles, food and beverages, club memberships and goods or services used for construction of immovable property on own account.
A monthly reconciliation routine
| Step | Compare | Action on difference |
|---|---|---|
| 1 | Purchase register with GSTR-2B | Classify each mismatch: missing in 2B, missing in books, value or GSTIN difference |
| 2 | Missing in 2B | Defer the credit; follow up with the supplier to file GSTR-1 |
| 3 | In 2B, not in books | Check whether the invoice belongs to you; act on it in the Invoice Management System |
| 4 | Credit claimed in GSTR-3B with 2B and books | Confirm the claim does not exceed eligible 2B credit |
| 5 | Ageing of supplier payables | Identify invoices nearing 180 days unpaid |
| 6 | Section 17(5) review | Remove blocked credits before filing |
Keeping a running list of deferred credits — and claiming them in the month they appear in GSTR-2B — avoids both lost credit and excess claims.