ITC is the backbone of GST — it prevents cascading of taxes by allowing businesses to offset GST paid on purchases against GST collected on sales. Learn what's eligible, what's blocked, conditions, utilization order, and reversal rules.
GST paid on goods purchased for manufacturing or resale. Must be used in the course or furtherance of business.
GST on machinery, equipment, plant used for business. Full ITC available at once (no installments since 2020).
GST on services like rent, professional fees, advertising, courier, internet, accounting used for business.
IGST paid on inter-state purchases can be used against CGST, SGST, or IGST liability.
ITC distributed by Input Service Distributor (head office) to branches is eligible.
Goods sent for job work — ITC available on inputs sent to job worker (must return within 1/3 years).
ITC is NOT available on the following items regardless of business use:
Except when used for transport of passengers, goods, driving training, or further supply
Except when used for same category of supply or as an element of mixed/composite supply
Unless provided for further supply of such services
No exception — always blocked
Except when government makes it obligatory or for same category supply
Except when input service for further supply of works contract
No exception — plant and machinery are NOT immovable property
No exception — must be for business use
ITC must be reversed on such goods. Gift/free sample disposal also blocked
Composition dealers cannot claim any ITC
Invoice must have GSTIN, HSN/SAC, tax amount. Self-invoicing for RCM supplies.
ITC available only after actual receipt. For goods in lots — ITC on last lot receipt.
Supplier must have deposited the tax collected. Check GSTR-2B for confirmation.
ITC must be claimed in GSTR-3B. Can claim up to November 30 of next financial year.
Since Jan 2022, ITC restricted to invoices appearing in auto-populated GSTR-2B.
If payment not made to supplier within 180 days, ITC must be reversed with interest.
As per Section 49 and the new rules, ITC must be utilized in this order:
| ITC Available | Can Be Used Against | Priority Rule |
|---|---|---|
| IGST | IGST → CGST → SGST/UTGST | Use IGST first before using CGST/SGST |
| CGST | CGST → IGST | Cannot use CGST to pay SGST |
| SGST/UTGST | SGST/UTGST → IGST | Cannot use SGST to pay CGST |
Key Rule: IGST credit must be fully utilized before using CGST or SGST credit. Cross-utilization between CGST and SGST is NOT allowed.
Reverse ITC + pay interest at 18%. Re-avail on payment.
Reduce ITC proportionately when supplier issues credit note.
Proportionate reversal based on exempt vs taxable turnover ratio.
Full reversal of ITC on such goods + interest.
Useful life depreciation (5% per quarter) based reversal.
Reverse excess ITC not matching GSTR-2B. Pay interest on excess.
ITC must be claimed by the earlier of: (a) November 30 of the next financial year, or (b) date of filing the annual return (GSTR-9). For example, ITC for FY 2025-26 invoices must be claimed by November 30, 2026.
Yes. When you pay GST under reverse charge mechanism (RCM), you can claim ITC on the same in the same month's GSTR-3B. Self-invoice is required as the supplier hasn't charged GST.
If the invoice doesn't appear in your GSTR-2B (because supplier didn't file GSTR-1), you cannot claim ITC. Follow up with the supplier to file their returns. The 2B matching is now mandatory.
Not directly. ITC distribution between branches must be done through an Input Service Distributor (ISD) registration. The head office obtains ISD registration and distributes ITC proportionally via GSTR-6.
Yes. You can claim ITC only up to the amount reflected in your GSTR-2B + 5% provisional ITC (this 5% rule was applicable earlier; now only GSTR-2B matched ITC is allowed since Jan 2022).