Recovering GST on your purchases, the four conditions, and the credits that are blocked
Input-tax credit lets a GST-registered business set the GST it pays on business purchases (inputs) against the GST it collects on sales (output), so GST is borne only on the value you add. To claim it you must hold a valid tax invoice, have received the goods or services, your supplier must have actually paid the tax so it appears in your auto-drafted GSTR-2B, and you must have filed your return. Some credits are blocked entirely under Section 17(5), and the credit for a year must be claimed by 30 November following the financial year. Composition dealers and suppliers of exempt goods cannot claim ITC.
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The four conditions for claiming ITC
Section 16 sets the conditions, all must be met.
You hold a valid tax invoice or debit note for the purchase
You have actually received the goods or services
The supplier has paid the tax to the government and it appears in your GSTR-2B
You have filed the relevant GST return
Your credit depends on your supplier
The condition that bites hardest is the third one: you only get the credit if your supplier has actually reported and paid the GST, so it shows up in your auto-drafted GSTR-2B. If a supplier fails to file or pay, your credit can be denied even though you paid them the GST. So deal with compliant suppliers, reconcile your purchase register against GSTR-2B every period, and chase any missing entries before you claim.
warningPaying GST to a supplier is not enough on its own. If they do not report and pay it, your ITC can be blocked. Reconcile against GSTR-2B and prefer suppliers with a clean filing record.
Blocked credits and the time limit
Section 17(5) blocks ITC on certain things regardless of business use, including most motor vehicles, food and beverages, club memberships, and goods or services used for personal consumption. ITC is also unavailable on inputs used for exempt supplies, and to composition dealers. And there is a deadline: credit for invoices of a financial year must generally be claimed by 30 November of the following year (or the annual return, if earlier), so do not let credits lapse.
tipDiarise the 30 November cut-off. An input credit not claimed by then for the prior financial year is generally lost, which is real money left on the table.
CGST Act 2017 s.16 (eligibility and conditions for ITC)
CGST Act 2017 s.17(5) (blocked credits)
CGST Act 2017 s.16(4) (time limit to claim ITC)
Frequently asked questions
What is input-tax credit?+
It is the mechanism that lets a GST-registered business offset the GST it pays on business purchases against the GST it charges on sales, so it ultimately pays GST only on the value it adds. Without ITC, GST would cascade at every stage. Composition dealers and suppliers of exempt goods cannot claim it.
Why was my ITC denied even though I paid the GST?+
Most often because your supplier did not report and pay the tax, so it never appeared in your GSTR-2B. Under Section 16, your credit depends on the supplier's compliance, not just your payment. Reconcile your purchases against GSTR-2B each period and chase missing entries before claiming.
What credits are blocked under Section 17(5)?+
Several, regardless of business use: most motor vehicles, food and beverages, club and health-and-fitness memberships, and goods or services used for personal consumption, among others. ITC is also unavailable on inputs used to make exempt supplies. Check Section 17(5) before assuming a purchase gives you credit.
Is there a deadline to claim ITC?+
Yes. Credit for invoices of a financial year must generally be claimed by 30 November of the following financial year, or the filing of the annual return, whichever is earlier. Miss that and the credit is generally lost, so reconcile and claim well before the cut-off.