Glossary GST
Input tax credit (ITC)
Definition
Input tax credit (ITC) is the GST paid on business purchases that you can set off against the GST you collect on sales, so you pay tax only on the value you add.
Example
A Lucknow furniture shop pays ₹27,000 GST on ₹1,50,000 of wood and hardware, and collects ₹45,000 GST on ₹2,50,000 of furniture sold. After setting off ₹27,000 of ITC, it pays ₹18,000 in cash. If the supplier had not reported the bill, the ₹27,000 would wait until it appears in GSTR-2B.
Input tax credit in TallyPrime and in Cashflow OS
Where to find itIn TallyPrime
Purchase vouchers with GST ledgers book input CGST, SGST or IGST in TallyPrime, and its GST reports show the input tax available, which you compare with GSTR-2B.
On your phoneIn Cashflow OS
Cashflow OS shows purchases, supplier ledgers and a GSTR-3B view prepared from the synced Tally data, so the input side can be checked away from the office PC.
See how it works
Common misunderstandings
- Watch outClaiming ITC on blocked items such as many personal-use purchases.
- Watch outKeeping the credit after not paying the supplier within 180 days of the invoice date.
How ITC works
GST is charged at each stage of a sale. A trader who buys stock pays GST to the supplier, then charges GST to the customer. ITC lets the trader deduct the first amount from the second and pay only the difference to the government. Without it, tax would pile up at every step.
Example
| Item | Taxable value | GST at 18% |
|---|---|---|
| Purchase of fans | ₹2,00,000 | ₹36,000 (input) |
| Sale of the same fans | ₹2,50,000 | ₹45,000 (output) |
| GST payable after ITC | ₹9,000 |
The ₹9,000 is 18% of the ₹50,000 you added. If the ITC could not be claimed, you would pay the full ₹45,000.
The main conditions
- You hold a valid tax invoice or debit note.
- You have received the goods or services.
- The credit appears in your GSTR-2B, which depends on the supplier filing their GSTR-1.
- The supplier has actually paid the tax, and you have filed your own return.
- The purchase is not on the blocked list (for example many personal-use items).
- You pay the supplier within 180 days of the invoice date, or reverse the credit.
There is also a time limit to claim credit for a financial year. Details are in our guide on ITC conditions and the list of blocked credits. Confirm current rules on cbic-gst.gov.in.
Where it shows up in TallyPrime
When you record a purchase voucher with GST ledgers, TallyPrime books the input CGST, SGST or IGST into the tax ledgers and shows it in its GST reports as eligible input. Comparing that input with GSTR-2B from the portal is how you find bills your supplier has not uploaded. Our guide on GSTR-2B matching walks through it.
This is general information, not tax advice.
Related terms
GSTR-2BGSTR-3BReverse charge (RCM)Composition dealerDebit noteAll terms A–Z
Questions about Input tax credit
Can I claim ITC if my supplier has not filed GSTR-1?
Is ITC available on a car bought for the business?
What happens to ITC if I do not pay the supplier?
Can I use IGST credit to pay CGST and SGST?
Is there a time limit to claim ITC?
This page is general information for Indian businesses, not tax, legal or financial advice. Rules and rates change — check the official portals or your CA before acting.
