Input tax credit is the GST you paid on business purchases, set off against the GST you collect on sales. It is the reason GST is charged on value added at each step, and for most businesses it is worth more than any other line in the return. The law gives it with conditions, and most notices about credit come from one of them being missed.
01The conditions in section 16
You can claim credit on a purchase only when all of these are true:
- You have the document. A tax invoice or debit note from a registered supplier, or a bill of entry for imports.
- The supplier has reported it. The invoice appears in your GSTR-2B, because the supplier filed it in GSTR-1 or IFF.
- You have received the goods or services. In a bill-to-ship-to deal, goods delivered to a third party on your instructions count as received by you.
- The supplier has paid the tax. The tax charged must have been paid to the government, in cash or through credit.
- You have filed your return. The credit is claimed in your GSTR-3B.
For goods received in lots against one invoice, credit is available when the last lot arrives.
02Credit that is blocked
Section 17(5) lists purchases on which credit is not allowed even when used in business. The common ones are:
| Purchase | Credit |
|---|---|
| Cars and other vehicles for carrying up to 13 people | Blocked, unless you sell vehicles, run passenger transport or train drivers |
| Food, drinks and outdoor catering for staff | Blocked, unless the law requires you to provide it or you supply the same service |
| Beauty treatment, health services, cosmetic surgery | Blocked, with the same exceptions |
| Club, health and fitness memberships | Blocked |
| Life and health insurance for staff | Blocked, unless the law requires you to provide it |
| Travel benefits to staff on leave, such as LTC | Blocked |
| Construction of a building on your own account | Blocked, including works contracts, except for plant and machinery |
| Goods given as gifts or free samples | Blocked |
| Goods lost, stolen, destroyed or written off | Blocked, and credit already taken is reversed |
| Tax paid on demands for fraud or suppression | Blocked |
03A worked example
An Ahmedabad CA firm with 12 staff has these purchases in a month:
| Purchase | GST paid | Credit |
|---|---|---|
| Two laptops for ₹1,20,000 | ₹21,600 | Claimable |
| Accounting software subscription for ₹30,000 | ₹5,400 | Claimable |
| Office rent of ₹80,000 from a registered landlord | ₹14,400 | Claimable |
| Diwali lunch for staff costing ₹25,000 | ₹1,250 | Blocked |
| Gift hampers for clients costing ₹40,000 | ₹7,200 | Blocked |
Out of ₹49,850 paid, ₹41,400 can be claimed. The rest becomes part of the cost.
04The 180-day payment rule
If you do not pay your supplier the value of a bill and the tax on it within 180 days of the invoice date, the credit you claimed on it is reversed. You add it back in the GSTR-3B for the period in which the 180 days end, and pay interest. Once you pay the supplier, you can claim the credit again.
A Jamnagar brass parts maker that buys rods on 120-day credit has room to spare. One that lets old bills from a disputed supplier sit unpaid for a year needs to reverse the credit on them. Reverse charge purchases and some deemed supplies are outside this rule.
05The time limit for claiming
Credit for a financial year can be claimed up to 30 November after the year ends, or the date you file the annual return for that year, whichever is earlier. A bill dated March 2026 that you find in December 2026 has lost its credit.
The same date applies to recording the credit on a supplier's debit note, counted from the year of the debit note.
06Credit on capital goods
GST on machinery, computers and other capital goods used for business is claimable in full in the month of purchase. If you claim depreciation for income tax on the GST portion of the cost, the credit on that portion is not allowed. You pick one.
When you sell a capital asset on which you took credit, you pay tax on the sale at the higher of the tax on the sale value or the credit taken less 5% for each quarter of use.
07Where credit and exempt sales meet
If you make both taxable and exempt sales, such as a Rajkot dealer who sells farm equipment that carries GST and seeds that are exempt, the credit on common inputs is split. Rules 42 and 43 set out how much to reverse each month, with a final calculation at year end.
08Using the Invoice Management System
Since October 2024, the GST portal's Invoice Management System lets you accept, reject or keep pending each invoice suppliers have reported before GSTR-2B is generated. Records you leave alone are treated as accepted. From the October 2025 tax period, you can also keep some credit notes pending for a limited time and declare how much credit to reduce on a credit note. The GSTR-2B guide covers this.
09A short monthly routine
Match purchase bills to GSTR-2B, mark blocked items, list bills unpaid for more than 150 days so they can be paid before day 180, and keep the working with the return. A routine like this takes an hour a month for most small firms and saves the larger effort of explaining credit claims later.
This guide is general information as of October 2026 and does not amount to tax advice.
MatruOS shows input credit from your purchases next to output tax in the month's GST summary.