Input tax credit lets a registered business reduce the GST it pays on sales by the GST it has already paid on its purchases. A distributor that collects ₹1,80,000 of GST on its sales in a month and paid ₹1,40,000 on its purchases pays the government the difference, ₹40,000.
The conditions
Under section 16 of the CGST Act, credit is allowed only when:
- you hold the tax invoice or debit note;
- you have received the goods or services;
- the invoice appears in your GSTR-2B;
- the supplier has paid the tax and filed its returns;
- you have filed your own return.
If you do not pay the supplier within 180 days of the invoice date, the credit has to be reversed until you pay.
Time limit and blocked credits
Credit for a year must be taken by 30 November of the following year or the date of the annual return, whichever is earlier (as of October 2026). Some credits are blocked outright under section 17(5), such as most motor cars, food and beverages, and goods for personal use.
The practical work is matching your purchase register to GSTR-2B each month, so that missing or wrong supplier invoices are chased while the supplier can still correct them.