Input tax credit (ITC) is what stops GST from cascading at every stage of a supply chain. It lets a registered business set off the tax it paid on its inputs against the tax it collects on its output. The mechanism is powerful, but it comes with conditions — here's how it works.
Reviewed by CA Harika Chebolu, FCA · Last updated 2026-06-15
Quick answer
Input tax credit lets you offset the GST on your purchases against the GST on your sales — but only when conditions are met. Here's how it works.
When you buy goods or services for your business, you pay GST on them. ITC lets you use that tax as a credit against the GST you charge your own customers, so you effectively pay tax only on the value you add. Without ITC, tax would pile on tax at every stage. For most businesses, claiming ITC correctly is the single biggest lever on their GST cash outflow.
You can't simply claim credit on every purchase. The core conditions are that you hold a valid tax invoice, you have actually received the goods or services, the supplier has reported the supply and paid the tax, and you have filed your own return. The requirement that the credit appear in your auto-drafted statement — reflecting your supplier's filing — means your suppliers' compliance directly affects your credit.
Some credits are blocked even when you meet the general conditions. Credit on certain expenses — particular categories of goods and services that the law specifies — cannot be claimed at all, and others are restricted or available only in limited circumstances. Because the blocked list is specific and changes at the margins, check whether a given expense qualifies rather than assuming every business purchase carries claimable credit.
If an input is used partly for taxable business supplies and partly for exempt supplies or personal purposes, the credit must be apportioned — you can only claim the business, taxable portion. This commonly affects mixed-use assets and overheads. Keeping records that let you justify the split is what makes an apportioned claim defensible if it's ever questioned.
ITC is heavily reconciliation-driven. Your claim should match what suppliers report, and mismatches are a frequent source of notices. There are also time limits on claiming credit for a given financial year, after which the window closes. The practical discipline is to reconcile your purchase register against the system regularly, follow up with non-compliant suppliers, and claim within the permitted period.
You need a valid tax invoice, actual receipt of the goods or services, the supplier having reported and paid the tax, and your own return filed. Crucially, the credit must appear in your auto-drafted statement, so your supplier's compliance affects your claim.
No — credit on certain specified goods and services is blocked or restricted, and mixed-use inputs must be apportioned. Check whether a particular expense qualifies rather than assuming all business purchases carry claimable credit.
Your credit may not be available, because ITC generally depends on the supply appearing in your auto-drafted statement. That's why reconciling regularly and following up with non-compliant suppliers protects your credit.
Worried you're missing or over-claiming input tax credit? Write to the firm and we'll reconcile your ITC and make sure you're claiming exactly what you're entitled to.