Input tax credit
ITC
Input tax credit is the GST you paid on business purchases, which you set off against the GST you collected on sales, so that tax applies only to the value you added.
ITC is what stops GST compounding at every stage of a supply chain. You collect tax on what you sell, you paid tax on what you bought, and you remit the difference. Without it, a product passing through four hands would be taxed four times on its full value.
The conditions are strict and one of them is outside your control: the credit is only available if the supplier actually reported the invoice, so it appears in your GSTR-2B. A supplier who files late has effectively withheld your money, which is why chasing suppliers on GSTR-1 is a normal part of accounts payable in India.
There is also a payment condition that catches businesses that stretch their creditors. If you have not paid the supplier within 180 days of the invoice date, credit already claimed must be reversed, with interest, and can only be reclaimed once payment is made.
Key facts
- Requires a valid tax invoice, receipt of the goods or services, and the supplier having paid the tax.
- The invoice must appear in your GSTR-2B for the credit to be available.
- Credit must be reversed if the supplier is not paid within 180 days of the invoice date.
- Blocked credits under section 17(5) include most motor vehicles, and goods used for personal consumption.
- GST charged on software subscriptions used for business is generally creditable.
Who this affects
Every regular GST-registered business. Composition dealers cannot claim ITC.
How YarnTally handles it
Purchases and supplier payments are tracked with their tax, and the customs ITC reconciliation screen matches duty paid on bills of entry against credit claimed. The 180-day reversal is a rule you still need to watch with your CA.
See what else it doesReviewed September 2026. This is general information about how these rules work, not tax or legal advice, and thresholds and due dates do change. Check your own position with your chartered accountant before acting on it.