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Input Tax Credit under GST

The term Input Tax Credit assumes significant importance in the arena of indirect taxation. Let us zero in on our analysis of this topic under the GST regime.

What is Input Tax?

“Input Tax” means the GST Taxes (CGST, SGST, IGST) charged on any supply of goods or services or both made to a registered person in the course or furtherance of his business and includes such tax payable on reverse charge basis— but excludes tax paid under composition levy.

Who is Eligible to Take Input Tax Credit?

Every registered person shall be entitled to take credit of input tax charged on any supply of goods or services to him which are used or intended to be used in the course or furtherance of his business on the basis of any of the following tax-paying documents:

  1. Tax Invoice issued
  2. Debit note
  3. Bill of entry
  4. Invoice prepared in respect of reverse charge basis
  5. Document issued by Input Service Distributor for distribution of credit.

Catch Point: It is important to observe the words ‘used by him’ and ‘in his business’. These words refer to the registered taxable person in question and not the legal entity as a whole. So, ITC paid in a State MUST NOT be in relation to the business of a taxable person in another State even if belonging to the same taxable person.

Conditions for Availment of Input Tax Credit:

  1. The said goods or services or both are used or intended to be used in the course or in the furtherance of his business;
  2. He is in possession of tax invoice/ debit note / tax-paying document issued by a supplier registered under this Act.
  3. He has received the said goods or services or both subject to job-work facilities and restrictions relating to input tax credit
  4. The supplier has uploaded the relevant invoice on the GSTN (online GST portal);
  5. The supplier has paid the said amount of tax (as charged in the invoice) to appropriate Government in cash or by way of utilization of input tax credit, as admissible;
  6. He – claimant of input tax credit – has furnished GST return in FORM-GSTR 2;
  7. In case all the above conditions are met except for the fact that the supplier has not uploaded the invoice in his GSTR-1, provisional ITC can be taken up to 5% of the credits that are eligible and uploaded by the supplier in his GSTR-1. The provisional ITC cannot exceed the amount of ITC not uploaded by the supplier in his Form GSTR-1.

Goods received in instalments: If goods are received in instalments against a single invoice, credit can be taken upon receipt of the last instalment of goods.

Failure to pay to supplier of goods or service or both, the value of supply and tax thereon:

If the recipient of goods/services has not paid the supplier within 180 days from date of invoice, the amount equal to input tax credit availed along with the interest will be added to output liability of the recipient. The said input tax credit can be re-availed on payment of the value of supply and tax payable thereon.

The above condition does not apply for supplies which are payable under reverse charge basis.

Example: Mr. A sells goods worth Rs 1,00,000 to Mr. B. on 01.08.2017 on credit. GST, @ 5 % has been assumed which comes to Rs 5,000. The invoice value, thus, is Rs. 1,05,000. Mr. B decides to pay the invoice amount later on. Now, while filing the GST returns for August 2017, Mr. B can claim the input tax credit of Rs 5000.00. 180 days (from 01.08.2017) lapses on 27.01.2018. If Mr. B does not pay the invoice amount by this date then the ITC of Rs 5000 will be reversed in the return and added to output tax liability. If subsequently, he pays the invoice amount, such ITC will be re-availed.

Capital goods on which depreciation is claimed: If depreciation has been claimed on the tax component of the cost of capital goods and plant and machinery under the provisions of the Income Tax Act, the input tax credit shall not be allowed.

Time limit to avail the input tax credit: Input Tax Credit has to be availed before

Due Date for filing the return for the month of September of the subsequent financial year

Or furnishing of Annual return,

Whichever is earlier.

Apportionment of Credit and Blocked Credit:

ITC Based on Use of Inputs

  1. Use of Inputs for Taxable / zero-rated supplies – ITC will be available.

    Example: Mr. A purchases raw materials and uses them to sell taxable/zero-rated goods. In this case, ITC will be available.

  2. Use of Inputs for Non-Taxable/Exempt/Nil-rated supplies – then ITC not available.

    Note: The value of exempt supplies shall include supply on which tax is paid under Reverse Charge, transaction in securities, sale of land and sale of building.

Blocked Credit

For Motor Vehicles:

  1. Input Tax Credit for motor vehicles used for transportation of passengers having seating capacity of up to 13 passengers is generally not available. However such ITC is available only if Motor vehicles are used for: A. Transportation of Goods. B. Further supply of such vehicles, transportation of passengers, imparting training on driving, flying, navigating such vehicles or conveyances.

    Example: Mr. A buys a passenger car worth Rs 300000 with GST Rs 80000. He deals in furniture and electronics and uses the car to travel to his showroom. In this case, even if the car is used for his business, ITC Rs 80000 cannot be claimed. In case he deals in transport business and buys a goods vehicle (like trucks) for transporting of goods, he can avail the ITC. If he deals in cars and buys cars (as stocks) for reselling, he can avail ITC. In case, he deals in passenger transport services and gives the car on hire for tourism, he can claim the ITC.

  2. Input Tax Credit on Supply of goods and/or services such as – food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery: Available only if such supply of goods or services of each category is used for making an outward taxable supply of the particular category of goods or services.

    Example: a school buys food and edible items in the canteen for providing food to the students. In such a case, ITC on food is not available. Only hotels and restaurants can avail the ITC.

  3. Input Tax Credit on membership of a club, health and fitness centre, travel benefits to employees on vacation i.e. leave or home travel concession : Never available
  4. Input Tax Credit on Works contract services when supplied for construction of immovable property, other than plant and machinery available only if it is for further supply of works contract service.
  5. Input Tax Credit is not available on Goods or services received by a taxable person for construction of an immovable property on his own account, other than plant and machinery, even though it is used in the course or furtherance of business.

    Example: If Mr. A deals in construction business and supervises the construction of an office for his staff, ITC in relation to that office will not be available.

  6. Input Tax Credit on rent-a-cab, life insurance, health insurance allowed only if it is notified by the Government as obligatory for an employer to provide to its employees or such inward supply of goods or services or both of a particular category is used by a registered person for making an outward taxable supply of the same category of goods or services or both or as part of a taxable composite or mixed supply.

A. What is the difference between the availment of ITC in case of Compulsory Registration and Voluntary Registration?

In case registration has been applied for within 30 days of being liable to do so, and the same is granted to the taxpayer, the input tax credit on stocks can be availed on the day immediately preceding the date from which he becomes liable to pay tax.

In case of application for voluntary registration, the input tax credit on stocks can be availed on the day immediately preceding the date of grant of registration under the provisions of the Act.

B. In case of change of scheme from composition scheme to Regular scheme whether input tax credit can be claimed on capital goods?

Under the GST law the composition dealer is not entitled for ITC and the scheme granted will stand withdrawn from the day on which the aggregate turnover exceeds fifty lakh rupees.

Examples of Above:

  • Masters India becomes liable to pay tax on 1st August 2017 and has obtained registration on 15th August 2017. Such person is eligible for input tax credit on inputs held in stock as on 31st July 2017.
  • Kunal applies for voluntary registration on 5th June 2017 and obtained registration on 22th June 2017. Mr. Kunal is eligible for input tax credit on inputs in stock as on 21st June 2017.
  • Gupta, registered person was paying tax under composition rate upto 30th July 2017. However, w.e.f 31st July 2017. Mr. B becomes liable to pay tax under regular scheme. Mr. Gupta is eligible for input tax credit on inputs held in stock as on closure of business hours as on 30th July 2017.

Important Notes

  1. Declaration in FORM GST ITC 1 must be filed within thirty (30) days from the date of becoming eligible to input tax credit.
  2. Rule 5 requires a declaration to be filed containing details of stocks and capital goods along with a certificate from a Chartered Accountant or Cost Accountant where the credit so claimed exceeds Rs.2 lakhs.
  3. The supplier will not be entitled to credit of goods and or services or both after expiry of 1 year from date of tax invoice.
  4. The credit on capital goods shall be reduced by 5% per quarter or part thereof from the date of invoice. Such credits are subject to verification of details furnished by the supplier in GSTR – 1 or GSTR – 4 on the common portal.

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GST Compliance

65 thoughts on “Input Tax Credit under GST”

  1. I as an individual , gives a contract to a building contractor to construct my house on a piece of land I own. The contractor buys raw material and uses services of a structural engineer. Can the contractor avail ITC on the raw materials and services ?

    • Revised Model GST Law mentions that input tax credit is not available for-

      works contracts services when supplied for construction of immovable property, other than plant and machinery, except where it is an input service for further supply of works contract service
      goods or services received by a taxable person for construction of an immovable property on his own account, other than plant and machinery, even when used in course or furtherance of business.
      On analysis, one finds this provision is quite contradictory.

      For example, any contractor/builder will not enjoy any input tax credit on the input services if he constructs any building. But he will enjoy input tax credit on input service for further supply of works contract service. These two sentences are confusing and contradictory.

      Input tax credit is available to both a builder and a taxable person while constructing plant and machinery. But input tax credit is not available to any taxable person who constructs on his own account even if it is for business use.

      This entire section is confusing and contradictory and further explanations are required.

  2. SIR

  3. July Month GSTR-2 is not filed till now then how bills can be shown in GSTR-2 and second if you forget purchase bills then your supplier have shown it in GSTR-1 so how you forget it?
    Please explain your question.
    Normal Procedure is :
    first you will pay your tax liability provisionally as per GSTR-3B (Your assessment). But, when actual GSTR-1 & 2 will be filed for the same month actual tax liability will be generate in GSTR-3 and accordingly, if you have paid more tax in GSTR-3B as compare to tax liability in GSTR-3 excess will be credited in your E-Ledger and if there is any shortfall then you have to paid such shot amount along with interest.
    So, if their is any mistake in July month GSTR-3B same can be corrected through GSTR-1 & 2 of same month.

  4. Sir, I have supply my car in pvt ltd firm for yearly contract basis so in GST what tax liability to service receiver and he can take credit in GST. Please repy

    • SAC Code 9966 Renting of Motor cab where the cost of fuel is included in the consideration charged from the service recipient GST Rate is 5% with no ITC.

      • We have supply service to a company at 5% GST without ITC. My question is, who will not take ITC , whether service provider or service receiver?Please explain.

  5. Mam/Sir Suppose I got a contract from PWD Govt Department To construct a road Of 1 crore.I Purchased Materials Of 30 Lac And Paid GST @18% 540000.Now my Question Is That Whether I will get the benefit Of ITC i Mean Tax payable Should Be 12,00,000-5,40,000=6,60,000 or 12,00,000/ Since It is Not an input service for further supply of works contract service.Thanks A Lot

    • SAC 995421 talks about General construction services of highways, streets, roads, railways and airfield runways, bridges and tunnels which attract 18% of GST so according to my opinion if your output supply is taxable then ITC should be allowed on Input services which are used or intended to be used for business or furtherance of business.

  6. Any big infrastructure facilities include three items
    1. Civil construction 2. Plant & Machinery 3. Electrical installlations
    In case of GST paid on Civil construction, I believe the same is not available as ITC and hence it is better to capitalise the entire cap-ex and claim depreciation.
    In caes of GST paid on P&M and Electrical installations, it is better to capitalise the cost excluding GST so as to claim ITC on it on completion of the project and on commencing operations / services.
    Can you Kdly clarify the rule position.

  7. Thank you for the informative article. I have a query regarding input tax credit benefit as a end consumer. I am looking to purchase apartment (which is currently under construction). The builder has applied 12 % GST on the agreement cost. Is there indicative or fixed percent amount that the builder will get back as ITC, which can further be passed on to me? Or is there a way by which I can know that the builder has passed on the benefit genuinely?

    • If you are purchasing a apartment for residential purpose and it does not have any connection with commercial use then you cannot claim ITC on Payment.
      Because for ITC it is compulsory that supply should be used or intended to be used for business or furtherance of business.

  8. Sorry, missed to clarify in previous comment. The apartment I am considering to purchase is for residential purpose and has nothing to do with business or commercial use.

  9. Thank you Ruchika for that response which is amply clear enough. However I will rephrase my question a bit. As I understand from your reply, the home buyer is not legally entitled or eligible to get the GST input credit. However the builder will be entitled for that. So in such case, can the buyer request the builder to pass on such credit to him (the home buyer), whereby the cost burden of apartment can be reduced. At the end it is benefit. Please correct my understanding if I am wrong.

    I came across some interesting article here; just sharing for your info. May be that throws some light on my query. Would appreciate if you could render your view based on that? Thank you so much in advance and for your time.




  10. Sir,
    Supplier invoice date is 30 July 2017 and as a purchaser or service receiver , I booked it on 8 August 2017
    My query is that I take ITC in the month of August 2017 but supplier shows it in his GSTR1 for the month of July 2017 ,of course it means that my GSTR 2A of July 2017 showing ITC of that invoice, however i took ITC in august 2017
    Now what would be the consequences

  11. My input supply is RS 300000 pm (purchased from un registered dealer) I am belongs to RCM. Am I eligible for input tax credit

    • If you are purchasing from Unregistered Dealer aggregate of Goods and services of more than Rs. 5000/- per day then you have to pay GST under reverse charge mechanism.
      Secondly when you will pay GST in cash then you will be eligible for ITC which you can use for set off of next month Tax liability.
      Here, Important point is when you have tax liability under reverse charge then for discharge of such tax liability you cannot use ITC, here you have to pay only cash.

  12. under GST if i purchase from unregistered dealer, i have to make invoice, payment voucher and pay GST under reverse charge.
    if i purchase from more then one unregistered dealer, do i need to prepare invoice for reverse charge payment for each unregistered dealer or can i make one consolidated invoice for the whole day purchases from all unregistered dealers

    • There is nothing clearly specify in law about it But some provisions are specify which are:-
      (a) where an invoice is required to be issued because of reverse charge purchase, a registered person may issue a consolidated invoice at the end of a month for supplies covered under sub-section (4) of section 9, the aggregate value of such supplies exceeds rupees five thousand in a day from any
      or all the suppliers.

      (b) Second thing which is specify are-
      a registered person may not issue a tax invoice in accordance with the provisions of clause (b) of sub-section (3) of section 31( i.e. value of goods or services is less than 200 Rs.) subject to the following conditions, namely,-
      (a) the recipient is not a registered person; and
      (b) the recipient does not require such invoice, and
      shall issue a consolidated tax invoice for such supplies at the close of each day in respect of all such supplies.
      Here, we can make a conclusion then you can issue Consolidated invoice.
      It’s my Personal Opinion.

  13. We are engaged in the transport/warehousing /logistics industry . We have recently purchased commercial vehicles, which we use for transporting goods. Can we claim the entire GST credit in one go ? Are there any other conditions for taking the credit ?( eg: restriction of sale of vehicles for a certain number of years ) . Can we also take input credit on the purchase of tyres for these trucks >

    • Normally ITC is not allowed in case of motor vehicle and conveyances except-
      the vehicle is used for the supply of other vehicles or conveyances
      the rule shall not apply if the vehicle is used for transportation of passengers
      the vehicle is used for imparting training on driving, flying, navigating such vehicle or conveyances
      the vehicle is used for transportation of goods.

      Here Vehicle is being used for transportation of goods hence ITC will be allowed.
      There is no restriction under GST for claiming ITC hence full ITC will be allowed in one go and ITC on tyre will be allowed as well.

      • M/s. XYZ Company purchased a volvo bus for Rs.1.50 Crores including GST of say Rs.25 Lakhs. XYZ uses this bus for transportation of passenger and charge 5% as GST on the fare from passengers. Now as per Section 17(5) of CGST Act XYZ company is eligible to take credit of Rs. 25 Lakhs. My question is, ‘The govt fixed the output GST rate on passenger transport service as 5% without ITC. Isn’t this contradictory with section 17 (5) of CGST act? or is it like, XYZ can set of Rs.25 Lakhs against GST collected from its passengers but no other input GST paid can be claimed and set off against the GST collected from the passengers?

      • Somewhere I read that for capital goods ITC can be 5% per quarter. This means 100% ITC can be claimed in 20 quarters which will be 5 years. So will it be in one go or in parts in 5 years?

  14. Expenditures incurred by a company towards labour like security caps, shoes, food at factory site, travelling for attending company’s seminars, food and stay charges above rs.1000/- per day and any other such additional expenditure clarify about ITC paid on such expenditures

  15. Dear Sir,
    supplier invoice date is 20.07.17 but we booked the purchase in our books of account on date 03.10.17.
    problem that we can get ITC on this purchase in October month

    • If i am able to understand your question than according to my opinion when you will make your purchase as a part of Return only then you will be able to claim ITC on it.
      Can you please explain why you booked in Oct month when the purchase belongs to July?

  16. dear sir;
    I am purchasing plant and machinery for our new manufacturing unit GST is applicable 18%. their is any banifit or tex deductions.

    • In earlier indirect tax regime you cannot claim full ITC on Capital Goods in 1 year, but in GST you can claim full ITC of GST paid on capital goods in the month of purchase.
      And also you can claim Normal Depreciation & Additional depreciation on machinery purchase value (excluding GST) under Income Tax.

  17. Sir
    We are in hotel industry
    We construct a hotel whether ITC on material purchase is available or not.
    We are service provider of hotel

  18. Dear Sir,

    one of our customer has raised invoice for Commission in Aug 2017 and submitted copy to us in Oct 2017, our office is saying they cannot enter this invoice as it is dated Aug 2017 and want a current dated invoice. please let me know if this Invoice of customer can be entered in Oct 2017 and till which date this invoice from customer can be entered in our books.


  19. Dear sir/madam,
    Please note that I have filed GST returns for the months of July, August and September respectively via GSTR1. While doing so, I calculated the ITC (Input Tax Credit) for each month by dividing the annual recurring charges of my purchase of service by 365 hence converting it into per day basis.

    Now that the vendor has raised invoices for services rendered in July , August and September quarter on a quarterly basis with bill date dated 6th October 2017, I am unable to enter the invoice number in any of the months GSTR2 and claim respective month’s ITC.

    Please suggest how/ where can I enter this quarterly invoice number and claim my ITC correctly which I have already filed for the months of July, August and September respectively. Thanking you,

    Angshuman Pal,

  20. No on material you cannot claim ITC
    Sec. 17 prohibits for claim of ITC for
    works contract services when supplied for construction of an immovable property (other than plant and machinery) except where it is an input service for further supply of works contract service;

  21. If a firm procure groceries items for employee like tea, sugar, biscuits, Namkeen etc, whether ITC is available?
    fooding take away from restaurant for employees whether ITC is available?

    • Yes you can. You can claim upto Next year Sept. Month GST Return filing or filing of annual return whichever is earlier.
      for 2017-18 Invoices you can claim upto Sept.18 Return filing or 17-18 Annual filing whichever is earlier.

  22. Will input credit be allowed on purchase of a new mobile phone for use by a partner of a firm. How the element of business use vs personal use of the phone be arrived at?

  23. Hello
    We work for a construction firm . And we recently got a work for repairing of a building. So in that case we will need to buy raw materials like brick, coment etc. so in that case can we claim input tac credits for the tax paid on buying such materials.
    I actually gone through a lot of article regarding the same but the answer written there is highly confusing. So I asked you for the help
    Your quick response will be highly solicited.
    Thanking You

  24. Hello,
    One of our Supplier from other state has supplied the material in Sept, the same material was received by us in November.
    In which month should we account the Invoice and take the ITC.

    Thanks & regards

  25. Hello sir,
    as i have purchased a commercial vehicle and invoice is 3150000 and gst is 882000 so i have purchased this vehicle for staff transport for a company and i wanted to know that i am eligible for input tax benefit of 882000 will be claimed as itc please help me out with this

  26. I am running a placement consultancy foe which I bought database access from recruitment websites in Nov and Dec’17. I have received invoices from them mentioning Gst applied. My billing for candidates recruited based on this database will happen in Feb’ 18 and subsequent months. When should I call for input tax credit? In Dec ’17 quarter or when y billing will happen? How should I breakup input tax credit claim?

  27. Hello

    I run a cafe in Bangalore. I do know that I cannot claim ITC on supplier grounds.

    What about on commission invoices? For eg, third party online aggregators such as Zomato, Swiggy etc issue us a commission based invoice. Can we claim the GST on this? Similarly we are franchising and working with a franchise partner that raises and invoice for their commission or services for generating confirmed business leads. Can I claim ITC on this?

    Do let me know

    Thank You

    • Except Sec. 17 Eligible for all items subject to condition that Goods must be used for furtherance of business or intended to be furtherance of business.

  28. Hello,

    I am looking to purchase a flat in a ready to move-in apartment from builder. He is charging me 12% GST(on sale value@4000 per sft plus amenities plus all other charges) + 6% registration cost(@ 2000 per sft rate). And he is saying there will not be any input tax credit passed on to me because he bought all the inventory prior to 1st July. Is this true? I thought GST restricts charging extra net effective taxes to end consumer to avoid price increases. Also, how can I verify whether he actually pays 12% GST and 6% registration cost.

    Background: Prior to GST, VAT plus stamp duty was about 6% , so effective increase in taxes is about 12%-6% = 6%, a clear hit to end consumer like me.

    • There is no logic that the inventory is purchased before 1st July.
      What is your purpose for buying the flat, are you contractor?

  29. we are real estate dealer we purchased property for giving on rent to other company.
    So, can we claim Input tax credit on the amount which are paid to interior company ?

  30. Can we avail ITC on GST paid on premium of Fire & Burglary insurance policy taken for stocks in trade in the name of the firm if the insurance company has issued policy with our GST no and theit GST invoice no
    Similarly can we avail ITC on vehicle insurance policy if vehicle is registered in Firm’s name but not used
    for commercial purposes.

  31. Dear Sir,

    Right now I am Composition dealer under GST regime which is from 1.10.2017 on wards. Previously I am regular dealer under GST regime in which I filed the return GSTR 3B and the period is from 1.7.2017 to 30.9.2017 then I converted into Compositon Scheme from 1.10.2017.

    During the regular dealer period I have ITC balance of GST around 56,000/-, then how can I avail this credit now ?

    Thanking you sir.

    Yours sincerely,

    Prakasam Dist.,

  32. Azhar khan respected sir my question is that i am doing a business of water supp[ly in banks and offices which is not taxable because i am not selling mineral water,now i have purchased a tata ace(chota hathi) for sending my jars and canes of water,and i paid a gst of rs 112000 i.e 28% on tatal cost i.e Rs400000, can i take a benifit of itc or can i claim of itc

  33. Hello,
    We are shifting our business in new premises. In new location we will make new flooring, furniture, fitting, Air Conditioner, etc. If we are purchasing all goods from register dealer and purchased on the name of business for business purpose.
    In this case will we get ITC or not?

  34. My supplier dispatched material on 26.02.2018 from Himachal Pradesh to Pune. Material received to me on 06.03.2018. My question is can I take the IGST credit in February 18 or when material received ( MArch 18 )
    Thank u waiting your reply.

  35. My supplier shipped goods from Mumbai Invoice dated 30.03.2018 and received by me in Delhi on 02.04.2018. Goods in transit for 4 days.
    Do I have to show purchase on 30.03.2018 or 02.04.2018 ?
    Can I claim ITC in GSTRB of March ? or should i claim in it April ?

  36. Hi,
    Our company manufacturing acoustical items like, Wooden Grooved panel, Wooden Baffles, Acoustic Chambers, Acoustic Enclosure, Acoustic Steel / Wooden Doors, Steel Noise Barriers, Anechoic Chambers, NVH Test Booth, Wooden Sliding Partition.

    We cant find HSN code of these,
    can you provide the HSN CODE…

  37. I am transporter given my own vehicle and few vehicle attached from market for the transportation of lpg cylinder contract with HPCL, BPCL and IOCl
    If I Purchase new Vehicle for the expansion of my business whether I can claim ITC cost of vehicle is 15.50 and GST is 3.05

  38. Bill Date 31.05.2018 but goods received on 05.05.2018 then in which month itc should be claimed under gst rules

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