GST Input Tax Credit & How to Claim ITC in GST

Input Tax Credit, or ITC, is a fundamental component of India's GST system. It reduces businesses' tax liability by allowing them to claim credit for the GST paid on purchases related to their operations. Every small or medium business and established big corporation must have a good hold on the input tax credit, its conditions, special cases, and deadlines. 

This blog is all about that. We will help you understand from the ground up and guide you through all the necessary information for filing an input tax credit. 

So, let’s get started from the basics!

What is Input Tax Credit under GST - The Working Mechanism

GST input tax credit is the credit businesses can claim on the GST they have paid on the purchase of goods and services. It is one of the major highlights of the GST Act. Let’s see how the GST Input Tax Credit actually works with an example. 

Suppose a business purchased goods worth Rs. 20,000 on which GST @ 18% was Rs. 3600. They sold goods worth Rs. 24,000, on which GST payable @ 18% was Rs. 4320. Now, let’s calculate and understand the net GST payable and the input GST credit.

Therefore, the net GST payable is Rs. 4320 minus Rs. 3600, which is Rs. 720. Hence, what we need to understand here is that amount of Rs. 3600 that was reduced in the Input Tax Credit availed by ABC Business that they had paid on the purchase of goods.

Note: For those who don’t know, outward GST is levied on outward supply. When a business sells its product, it is called outward supply. And the GST collected from outward supply is called outward GST.

Conditions for Claiming Input Tax Credit Under GST

These conditions must be met to claim ITC under GST:

• Taxpayers must possess a valid tax invoice or debit note issued by a registered supplier.

• The taxpayer should have received the goods or services

• The supplier must have paid the tax charged to the government

• The taxpayer must have filed the necessary GST returns (i.e., typically GSTR- 3B) under Section 39. 

• The recipient must pay the supplier the value of the goods or services along with the tax within 180 days from the date of the invoice. Failing this, the ITC claims will be added to the recipient's output tax liability, along with interest.

• ITC is not allowed if depreciation has been claimed on the tax component of the cost of capital goods.

• If goods are delivered to a third party on the direction of the registered person (bill-to-ship-to model), the registered person is deemed to have received them, making them eligible for ITC. 

• ITC can be claimed on capital goods used for business purposes if the depreciation is not claimed on the tax component.

   

Note: The Finance Bill 2025 has introduced a track-and-trace mechanism for specific goods prone to tax evasion, such as tobacco and plastic, underlining the need for compliance in these sectors.

How to Claim Input Tax Credit in GST?

Once the above conditions are met, you can file the ITC under GST. Here are the steps for the same:

Step 1: Log into the GST Portal 

• Visit the GST portal and log in with your credentials ( GSTIN, username, and password).

• Navigate to Services > Returns > Returns Dashboard

• Select the financial year and return filing period (month/quarter).

• Click Prepare Online for GSTR-3B.

Step 2: Reconcile ITC with GSTR-2B

• Download GSTR-2B (auto-generated ITC statement)

• Verify whether the invoices from your suppliers are reflected

• Ensure your suppliers have filed GSTR-1 and the tax has been paid to the government.

• If discrepancies exist, communicate with the supplier to rectify them.

Step 3: Enter ITC details in GSTR-3B

• Go to Section 4 (Eligible ITC) and click on Table 4: Eligible ITC in GSTR-3B.

• Enter the details in the respective columns.

• Under ITC Available, enter the eligible ITC amounts:

  • CGST- Mention ITC for CGST purchases

  • SGST- Mention ITC for SGST purchases

• Reverse ineligible ITC: If any portion of ITC is ineligible, mention it under Table 4(B)

• Check the Total Tax Payable in GSTR-3B

   

Step 4: Submit and file GSTR-3B

• Click on Proceed to Payment and verify ITC utilization

• If required, pay the remaining tax liability using net banking, UPI, or NEFT.

• Click Submit and then File GSTR-3B using DSC or EVC (OTP-based authentication).

• Download the Acknowledgment Receipt.

   

For SGST

The amount of ITC on account of SGST must be first utilized to pay SGST and then for IGST payment. This amount cannot be used to pay CGST. The ITC of SGST has to be calculated state-wise, which means the ITC of SGST in one state cannot be utilized for payment of SGST in another state. 

Note: ITC cannot be used to make interest payments, penalties, fees, or any amount payable other than GST.

For CGST

The Input Tax Credit on account of CGST shall first be utilized for the payment of CGST and then for the payment of IGST. This amount cannot be used to pay SGST or UTGST.

Documentations Needed for Input Tax Credit

Under the GST scheme, taxpayers will require the following documents to claim ITC:

• Invoice provided by the supplier of goods and/or services
• Bill of Entry or a similar document issued by the Customs Department
• Bill of Supply issued by the supplier
• Invoice issued similar to Bill of Supply, if the total amount is less than Rs. 200 or where reverse charge is applicable
• Any debit note issued by the supplier
• Document issued by ISD as per the invoice rules under GST

The Need for Input Tax Credit in GST

ITC played a crucial role in preventing the cascading effect of taxes, where tax is levied on tax, causing increased product prices. When businesses are allowed to claim credit for taxes paid on inputs, the GST promotes value addition in each stage while promoting transparency and efficiency. 

GST ITC for Different Tax Types

Central Goods and Services Tax (CGST)

ITC can be used primarily to offset CGST liability first, and any remaining credit can be applied toward Integrated Goods and Services Tax (IGST). However, it cannot be used for State Goods and Services Tax (SGST) or Union Territory Goods and Services Tax (UTGST).

State Goods and Services Tax (SGST)

SGST ITC must first be utilized for SGST liability, with any excess being used for IGST, but it cannot be used for CGST or UTGST

Union Territory Goods and Services Tax (UTGST)

UTGST ITC follows the same rule as SGST. It can be used first to settle UTGST dues, then IGST, but not CGST or SGST. 

Integrated Goods & Services Tax (IGST)

IGST ITC offers the most flexibility, as it can be used first for IGST, then for CGST, and finally for SGST or UTGST.

Allowances and Disallowances of Input Tax Credit

It is also important to know the allowances and disallowances under the GST input tax credit for smooth business operations. Let’s break it down!

Allowances of ITC

• ITC can be claimed for goods and services used for business purposes and business expansion needs alone. 

• ITC is allowed on capital goods, including machinery and equipment, provided they are utilized in the supply or production of taxable goods or services.

• ITC is also allowed for services such as logistics, warehousing, and professional services if they directly relate to taxable supplies.

• Businesses can claim ITC on GST paid under RCM (Reverse Charge Mechanism) on specified goods and services, such as freight services or services imported.

• With the new 2025 update, ITC can only be claimed if the supplier has uploaded the invoice, and it reflects in the recipient’s GSTR-2B.

• ITC is now allowed for goods and services procured to fulfill CSR (Corporate Social Responsibility) obligations under the Companies Act 2013.

   

Disallowances of ITC

• ITC is not allowed for goods or services used for personal consumption, even if partially used for business.
  

• ITC cannot be claimed for motor vehicles with seating capacity of less than 13 unless used for specific activities like transportation of goods or passenger transport business.
  

• ITC is not available on goods or services used for construction of immovable property (except when used for plant and machinery).
  

• ITC is also not allowed to be a member of clubs, health and fitness centers, and other similar facilities.
  

• ITC is not permitted on goods that are lost, stolen, destroyed, written off, or given as gifts or free samples.
  

• ITC will not be allowed if the supplier fails to file GSTR-1 or their GST registration is suspended or canceled.

   

Allowance and Disallowance - Special Points

The Reversal of ITC under GST

Under the GST scheme, the supplier of goods and/or services pays tax on supply. However, in the case of the Reverse Charge Mechanism (RCM), the receiver becomes liable to pay the tax. There are three instances when the reverse charge mechanism comes into play:

Instance 1: Supply from an Unregistered Dealer to a Registered Dealer

The RCM is triggered when a registered dealer buys goods or services from an unregistered dealer. In such cases,

• The registered receiver self-invoices for the purchases made and pays the applicable GST directly to the government rather than to the supplier.

• For inter-state purchases, the buyer must pay IGST, while for intra-state purchases, CGST + SGST are applicable under RCM.

   

Instance 2: Services Via E-commerce Platform

When certain services are provided through e-commerce platforms, the e-commerce operator becomes liable to pay GST under RCM instead of the individual service provider. Common services under this mechanism include:

• Housekeeping

• Plumbing

• Electrician services

• Transportation of passengers

• Restaurant services (in certain cases)

   

Note: Where an e-commerce operator does not have a physical presence in a particular state, they must appoint a representative who will be responsible for GST compliance in that jurisdiction.

Instance 3: Supply of Certain Goods and Services Specified by CBIC

The Central Board of Indirect Taxes and Customs (CBIC) periodically issues a list of goods and services that attract RCM. Some common examples include:

• Goods Transport Agency (GTA) services

• Legal services provided by an individual advocate or firm

• Sponsorship services

• Services provided by a director to a company

• Security services supplied by non-corporate suppliers

   

ITC Excess Refund

Businesses can claim a refund of excess ITC when the accumulated credit exceeds their GST liability. The refund is triggered mainly in the following two cases:

• Zero-rated supplies (exports without payment of tax under bond or Letter of Undertaking)

• Inverted duty structure, where the GST rate on inputs is higher than the rate on output supplies.

   

However, businesses must ensure that refund claims are made within 2 years from the relevant date, as per Section 54 of the CGST Act.

ITC Under Special Cases

Capital Goods ITC Restrictions

Input Tax Credit on GST cannot be claimed on certain capital goods in the following cases:

• When capital goods are used for the production of exempted goods or services

• When capital goods are used for non-business or personal purposes

   

What Qualifies as Capital Goods?

Capital goods refer to tangible assets such as machinery, equipment, vehicles, or buildings that are used in the course of business or for producing other goods and services. For instance, an oven is considered capital goods for a bakery business.

Since capital goods are depreciating assets and are not consumed within a single year, ITC on capital goods must follow specific conditions. As per Section 16(3) of the CGST Act, if a taxpayer claims depreciation under the Income Tax Act on the GST component of the cost of capital goods, then they are not allowed to claim ITC on the same GST amount.

Case 1: Job Work

As per Section 2(68) of the CGST Act, job work refers to any treatment or process undertaken by a person (job worker) on goods belonging to another registered person (principal).

• The principal can avail ITC on inputs or capital goods sent to the job worker for processing.

• ITC can also be claimed even when goods are sent directly to the job worker without first being brought into the principal's place of business.

   

Please Note: The ownership of goods remains with the principal and not with the job worker.

Case 2: Input Service Distributor (ISD)

Businesses operating in multiple states may find ITC distribution complex. To tackle this, the GST law allows the use of an Input Service Distributor (ISD):

• The ISD mechanism enables a centralized office to collect ITC on common input services (such as audits, advertising, etc.) and distribute it to different branches or units under the same PAN across states.

• Distribution is done based on invoices and is reflected in each branch’s GST returns.

   

Case 3: Pipelines and Telecommunication Tower

As per the latest CBIC clarification, 

• Pipelines and telecom towers will now be treated as part of plant and machinery (if capitalized as such).

• Hence, businesses can now claim ITC on the GST paid for these assets, provided they are used in the course of business.

   

Please Note: ITC is still disallowed if used for construction of immovable property not qualifying as plant & machinery (e.g., office buildings).

Case 4: Bank and Financial Institutions

Banks and financial institutions have special provisions under Rule 38 of the CGST Rules:

• They can claim 50% of the eligible ITC on inputs, input services, and capital goods instead of apportioning based on exempt and taxable turnover.

• The remaining 50% must be reversed voluntarily each month.

• This adjustment is now reported via GSTR-3B based on auto-drafted GSTR-2B input tax statements.

   

Deadline for claiming ITC

The most important information to keep handy is knowing the deadlines for claiming ITC. As per Section 16(4) of the CGST Act:

A registered person can claim ITC up to the earlier of the following two dates:

• 30th November of the next financial year following the financial year in which the invoice or debit note was issued, OR

• The date of filing the annual return (GSTR-9) for that financial year.

   

Please Note: For provisional ITC, businesses must reconcile ITC with auto-populated GSTR-2B and claim eligible ITC before this deadline. ITC on debit notes is also governed by this same deadline, which is linked to the issuance date of the debit note, not the original invoice.

Points to Remember While Availing ITC

• A buyer must pay the supplier the value of goods or services along with the tax amount within 180 days from the date of the invoice.

• If payment is not made within 180 days, the ITC availed will be added back to the buyer’s output tax liability, with applicable interest.

• Once payment is made after reversal, the buyer can re-avail the ITC for that invoice. In case of partial payments, ITC can be availed in proportion to the payment made.

• The buyer must possess a valid tax invoice, debit note, or other prescribed document as per Section 16(2) of the CGST Act.

• ITC can be claimed only after the buyer has received the goods or services.

• In the case of installment deliveries, ITC can be applied to the last installment's invoice once the final lot is received.

• The supplier must have paid the tax collected on the invoice to the government, either through ITC adjustments or cash payment, and must have furnished it in their GSTR-1, reflected in the recipient’s GSTR-2B.

   

ITC Claims for Products Bought on Amazon Business

Amazon Business is one of the biggest B2B marketplaces catering to business buyers. One of the biggest perks of procuring from Amazon Business is the option to avail of GST input tax credit on eligible products. All the sellers on Amazon Business are GST-registered suppliers capable of issuing a valid GST invoice. 

However, in order to be eligible for ITC under GST, ensure the following:

• The product or service is being used for business purposes.

• Confirm that the seller’s invoice includes GSTIN and proper tax bifurcation (CGST, SGST, or IGST) and that it is uploaded to the Amazon platform.

• The purchase must not fall under the list of ITC disallowances (e.g., personal expenses, motor vehicles for personal use, etc.).

   

How To Claim GST Input on Amazon Business?

Here’s a quick rundown of steps to claim GST input tax credit on Amazon Business:

• Your business must have a registered Amazon Business account linked to your GSTIN

• Use filters and purchase products only from GST-registered sellers or vendors that offer GST invoices.

• Once the order is received, download the GST invoice from Your Orders > Download Invoice (Business Invoice) section.

• Check and ensure that the invoice appears in your GSTR-2B auto-populated form to validate that the supplier has filed their GSTR-1 correctly.

• Finally, report eligible GST-compliant invoices under Input Tax Credit in your monthly GSTR-3B returns.

   

Latest News and Trends - GST Input Tax Credit

Considering the amendments introduced to the GST system in 2025, here are some of the latest news and trends to look out for:

• Now, ITC can be claimed until 30 November of the following financial year or until the annual GST return filing (whichever is earlier).
  

• GST authorities are strict with vigilant monitoring. They are cross-verifying ITC claims via GSTR-2B data. Ineligible or mismatched ITC claims are facing audits and penalties.
  

• The focus on e-commerce platforms like Amazon, Flipkart, etc., has been increased to ensure B2B buyers receive proper GST invoices to claim valid ITC.
  

• Several GST software solutions now automate Amazon Business invoice integration with GSTR-2B reconciliation, reducing manual errors for businesses.

Conclusion

Knowing the nitty gritty of claiming input tax credit is crucial for businesses to reduce their overall GST liability. With a B2B e-commerce platform like Amazon Business, businesses can streamline their procurement while remaining tax-compliant for a smooth tax credit process.