Input tax credit conditions under GST

Why the conditions matter

Input tax credit (ITC) is what makes GST a tax on value added rather than on every sale. A distributor who buys stock for ₹10,00,000 plus ₹1,80,000 GST and sells it for ₹12,00,000 plus ₹2,16,000 GST pays only the ₹36,000 difference in cash. But the ₹1,80,000 is not automatic. If even one condition fails on a bill, the credit on that bill can be denied, and if already claimed, reversed with interest.

The core conditions, one by one

1. You hold a valid tax invoice or debit note from a registered supplier, showing your GSTIN, the supplier's GSTIN, the tax charged and the other required details. A delivery challan or a proforma invoice is not enough.
2. You have received the goods or services. Goods delivered to a third party on your instruction (bill-to-ship-to) count as received by you. Where goods come in lots against one invoice, credit is available when the last lot arrives.
3. The invoice appears in your GSTR-2B. Your supplier must have reported it in GSTR-1 or IFF, and it must not be restricted in your statement. See GSTR-2B and ITC matching.
4. The supplier has actually paid the tax to the government, in cash or through their credit. You cannot see this directly, but if the supplier defaults, credit can be questioned.
5. You have filed your GSTR-3B for the period in which you claim it.

The 180-day payment rule

If you do not pay the supplier the value of the supply plus tax within 180 days from the invoice date, the credit taken on that bill has to be added back to your output tax, with interest. When you pay later, you can claim it again.

Example. A Surat textile trader buys fabric on 1 April for ₹2,00,000 plus ₹10,000 GST at 5% and claims ₹10,000 ITC in April. By 28 September (180 days) only ₹1,05,000 has been paid. The unpaid share is ₹1,05,000 of ₹2,10,000, so half the ITC, ₹5,000, is reversed in that period's GSTR-3B with interest. When the balance is paid in November, the ₹5,000 is claimed again.

This rule does not apply to tax paid under reverse charge, and some deemed supplies are excluded. More on this in ITC reversal under the 180-day rule.

Time limit to claim

Credit for invoices of a financial year must be claimed by the earlier of 30 November of the following year, or the date you file the annual return for that year. A bill dated March 2026 missed in your books must be claimed by 30 November 2026 at the latest. After that, the credit is lost even if every other condition is met.

For a debit note, the date that counts is the date of the debit note itself, not the original invoice.

Credit that is never allowed

Some purchases are blocked no matter how good the paperwork is: most passenger cars, food and beverages, club memberships, personal consumption, construction of your own building, and goods lost, stolen or given away as free samples. These are covered in blocked input tax credit.

Credit is also restricted to the extent the purchase is used for exempt supplies or for non-business purposes, in which case a proportionate amount is reversed.

Checklist before you claim

Common mistakes: claiming on a bill made out to the wrong GSTIN (often a branch in another state), claiming twice when a bill is entered once as purchase and once as expense, and claiming on goods still in transit at month end.

This is general information, not tax advice. Confirm current rules on cbic-gst.gov.in or with your CA.

Tracking it with Tally and Cashflow OS

The 180-day rule is really a payables question: which supplier bills are still unpaid, and how old are they? Cashflow OS shows bill-wise payables and ageing from your TallyPrime data on the phone, so the owner can see bills approaching 180 days and pay them first. The GSTR-3B view prepared from Tally shows the credit as booked, which you then compare with GSTR-2B on the portal.