What Is Input Tax Credit?

What is input tax credit?

Input tax credit is the GST you have paid on goods and services bought for your business, which you set off against the GST you collect on your sales so that tax is only borne on the value you add. Claiming it depends on holding a valid tax invoice, having received the goods or services, the supplier having reported and paid the tax, and the credit not being blocked for that category of expense.

The four conditions

A valid tax invoice, actual receipt of the goods or services, the tax having reached the government, and your having filed the relevant return. The third condition is the one outside your control, which is why supplier reporting matters so much.

Why 2B decides it

Credit is now largely restricted to what appears in your GSTR-2B, meaning a supplier who has not filed has effectively spent your money. Reconciling monthly is how you find that out while there is still time to chase them.

Blocked credit

Some credit is denied outright regardless of the invoice — certain motor vehicles, some construction of immovable property, goods for personal consumption, and others. These never enter the claim.

Reversal for non-payment

Credit taken on a supplier bill that goes unpaid beyond the prescribed period must be reversed, and can be reclaimed once paid.

Can I claim credit if my supplier has not filed their return?

Generally not. Credit is largely restricted to what appears in your GSTR-2B, so an unreported invoice is credit at risk even though you hold a valid tax invoice and have paid the supplier in full.

Is there a deadline for claiming credit?

Yes — credit for a financial year cannot be claimed indefinitely; there is a cut-off tied to a later return or the annual return. Credit found after it is generally lost.

What is blocked credit?

Categories on which credit is denied by law regardless of documentation — certain motor vehicles, some construction, and goods or services for personal consumption among them.