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Input Tax Credit under GST – Conditions To Claim

Input Credit Helps in Determining the Correct Amount of Working Capital at any Given Point of Time. This is Highly Critical Information from Business Liquidity Standpoint. Read more here

Updated on:  

08 min read

“Input Tax” in relation to a taxable person, means the Goods and Services Tax charged on him for any supply of goods and/or services to him or purchases he makes, which are used or are intended to be used, for the furtherance of his business. 

There are certain conditions to be fulfilled to claim ITC. ITC forms one of the most critical aspects for every business while settling tax liability. It is the backbone of GST and a major matter of concern for the registered persons. The conditions for eligibility to claim ITC prescribed under the GST law are more or less in line with pre-GST regime. These rules are also quite particular and stringent in nature.

Latest Update

28th May 2021
CGST Rule 36(4) to cumulatively apply for April, May and June 2021 while filing GSTR-3B of June 2021.

1st May 2021
The CGST Rule 36(4) restricting provisional ITC claims to 5% of GSTR-2B in GSTR-3B is relaxed for April 2021. The taxpayer can apply this rule cumulatively for both April and May while GSTR-3B for May 2021.

1st February 2021
Budget 2021 update: Section 16 amended to allow taxpayers’ claim of the input tax credit based on GSTR-2A and GSTR-2B. Henceforth, the input tax credit on invoice or debit note may be availed only when the details of such invoice or debit note have been furnished by the supplier in the statement of outward supplies and such details have been communicated to the recipient of such invoice or debit note.

22nd December 2020
Following are the changes in Rule 36(4) from 1st January 2021:
1. The ITC shall be available as per the invoices uploaded by respective suppliers either in their GSTR-1 or by using the Invoice Furnishing Facility (IFF).
2. The recipients can claim provisional input tax credit in GSTR-3B to the extent of 5% instead of earlier 10% of the total ITC available in GSTR-2B for the month.

Certain taxpayers cannot make payment from their electronic credit ledger in excess of 99% of the total tax liability for the tax period as per a new rule 86B.

3rd April 2020
The CBIC has notified that taxpayers can claim input tax credit in the GSTR-3B return from February 2020 to August 2020, without applying the rule of capping provisional ITC claims at 10% of the eligible ITC as per GSTR-2A.

While filing the GSTR-3B of September 2020, the taxpayers must cumulatively adjust ITC as per the above rule from February 2020. 

Input Tax Credit under GST – Conditions To Claim

A registered person will be eligible to claim Input Tax Credit (ITC) on the fulfillment of the following conditions: 

  • Possession of a tax invoice or debit note or document evidencing payment 
  • Receipt of goods and/or services 
  • Goods delivered by supplier to other person on the direction of a registered person against a document of transfer of title of goods 
  • Furnishing of the GST return in form GSTR-3B 
  • Where goods are received in lots or installments, ITC will be allowed to be availed when the last lot or installment is received 
  • Failure of the supplier towards supply of goods and/or services within 180 days from the date of invoice, ITC already claimed by the recipient will be added to output tax liability and interest to be paid on such tax involved. On payment to the supplier, ITC will be again allowed to be claimed. 
  • No ITC will be allowed if depreciation has been claimed on the tax component of a capital good 
  • Time limit to claim ITC against an Invoice or Debit Note is earlier of below dates: The due date of filing GST Return for September of next Financial year OR Date of filing the Annual Returns relevant for that Financial year. 
    For instance,  XY Corp, a buyer with a Purchase Invoice dated 8th July 2017 (FY 2017-18), wants to claim GST paid on that purchase. As per the criteria laid down to reckon the time limit: The due date of filing GST return for September 2018 (belonging to FY 2018-19) is 20th October 2018 and the date of filing GST Annual Return for FY 2017-18 is 31st December 2018, whichever is earlier will be the time period within which XY Corp has to claim ITC. Therefore, the date is 20th October 2018 and XY Corp can claim this ITC in any of the months between July 2017 to September 2018. 
    Note: For Debit Notes, the above condition must be considered with respect to the debit note itself and not the original invoice that it is linked to. 
  • Common credit of ITC used commonly for effecting exempt and taxable supplies, business and non-business activity.
  • A regular taxpayer can claim provisional ITC in GSTR-3B only to the extent of 5% of the ITC available in GSTR-2B. It means the amount of ITC reported in GSTR-3B will be a total of actual ITC in GSTR-2B and provisional ITC being 5% of actual ITC in GSTR-2B. Hence, matching purchase register or expense ledger with GSTR-2B becomes crucial.
  • Apart from the above conditions, there are certain items listed down to not be eligible for ITC claims under Section 17(5) of the CGST Act. These are known as blocked credits and are completely decoded in our article on Blocked credit.

Items on which credit is not allowed

  • Motor vehicles and conveyances except the below cases
  • Such motor vehicles and conveyances are further supplied i.e. sold
  • Transport of passengers
  • used for imparting training on driving, flying, navigating such vehicle or conveyances
  • Transportation of goods
  • food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery
    But if the goods and/or services are taken to deliver the same category of services or as a part of a composite supply, credit will be available
    Example: Mr. Dev purchases cosmetic creams to supply it to a customer, then credit of ITC paid on purchases will be allowed.
  • Sale of membership in a club, health, fitness centre.
  • rent-a-cab, health insurance and life insurance except the following:
    • Government makes it obligatory for employers to provide it to its employees
    • goods and/or services are taken to deliver the same category of services or as a part of a composite supply, credit will be available
      Example: Mr. Dev takes the service of rent-a-cab to supply to Mr. Manoj, a customer, then the credit of ITC paid on purchases will be allowed.
  • travel benefits extended to employees on vacation such as leave or home travel concession.
  • Works contract service for construction of an immovable property (except plant & machinery or for providing a further supply of works contract service)
  • Goods and/or services for the construction of an immovable property whether to be used for personal or business use
  • Goods and/or services where tax have been paid under composition scheme
  • Goods and/or services used for personal use
  • Goods or services or both received by a non-resident taxable person except for any of the goods imported by him.
  • Goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples
  • ITC will not be available in the case of any tax paid due to non-payment or short tax payment, excessive refund or ITC utilized or availed by the reason of fraud or willful misstatements or suppression of facts or confiscation and seizure of goods. To read understand the basics of Input Tax Credit, Click Here.

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