Input Tax Credit (ITC) under GST in 2026: Conditions, Blocked Credits and Worked Examples

Input tax credit is the reason GST is a tax on value added rather than on the full price at every step. Claim it correctly and you deposit only the difference between GST collected and GST paid; claim it wrongly and you repay it with interest. This guide is for business owners and accountants who file GSTR-3B: what counts as ITC, the conditions in section 16, how GSTR-2B and the Invoice Management System decide what you can claim, which credits are blocked, when you must reverse, and the 2026 deadlines. The law was checked against the CBIC statute text in October 2026.

Quick answer

Input tax credit (ITC) is the GST you paid on purchases used for your business, which you can set off against the GST you owe on sales. You can claim it only if you hold a valid tax invoice, the invoice appears in your GSTR-2B, you have received the goods or services, the supplier has paid the tax and you have filed your return.

• Claim for a financial year by 30 November of the next year (or the annual return, if earlier)

• Pay suppliers within 180 days or reverse the credit with interest

• Blocked under section 17(5): cars, food, club memberships, personal use, building construction and more

• Wrongly availed and used ITC costs interest at 18% a year

What is input tax credit? Meaning with an example

"Input tax" is the CGST, SGST/UTGST or IGST charged to you on goods and services you buy for your business, plus GST you pay yourself under reverse charge and IGST on imports. "Credit" means that amount goes into your electronic credit ledger and can be used to pay your output GST instead of cash.

Example. A Ludhiana garment maker buys fabric and trims for ₹5,00,000 + 5% GST (₹25,000) and cartons and packing material for ₹40,000 + 18% GST (₹7,200). It sells shirts for ₹8,00,000 + 5% GST = ₹40,000.

How the credit flows

Step 1

GST on purchases

₹25,000 + ₹7,200

Step 2

Shown in GSTR-2B

Step 3

Credit ledger

₹32,200

Step 4

Output GST

₹40,000

Step 5

Cash payable

₹7,800

Without ITC, the business would pay ₹40,000 in cash and the ₹32,200 already paid to suppliers would become a cost built into the shirt price. With ITC it pays only ₹7,800 in cash.

Who can claim ITC — and who can't

Any regular registered taxpayer can claim ITC on inputs, input services and capital goods used in the course or furtherance of business. These cannot:

• Composition taxpayers — no credit on purchases, and their buyers get none either.
• Suppliers of exempt or nil-rated goods/services — credit for those supplies is not allowed and must be reversed proportionately (Rules 42 and 43).
• Services taxed at 5% "without ITC" — e.g. hotel rooms up to ₹7,500 a night, beauty and fitness services, passenger transport, and GTAs that choose 5%. The GST Council confirmed this treatment continues after the 22 September 2025 rate changes.
• Unregistered persons and final consumers.

Conditions to claim ITC under section 16

Section 16(2) of the CGST Act sets six conditions. All must be met.

Section 16(2) conditions — tick every one

0/6

• You hold a tax invoice or debit note from a registered supplier (or a bill of entry for imports)
• The supplier has reported it in GSTR-1/IFF and it appears in your GSTR-2B (s.16(2)(aa))
• You have received the goods or services (delivery to someone on your instruction counts)
• The credit has not been restricted in your GSTR-2B (s.16(2)(ba))
• The supplier has actually paid the tax to the government
• You have filed your GSTR-3B return

Share Print

Two provisos matter in practice:

• Goods received in lots: credit is available only when the last lot arrives.
• Depreciation: if you claim income-tax depreciation on the GST portion of a capital asset, you cannot also claim ITC on it (section 16(3)). Capitalise the asset net of GST.

If the invoice is from an e-invoice-enabled supplier, it must carry an IRN; otherwise it is not a valid invoice — see our e-invoice guide.

GSTR-2B, IMS and how to claim ITC

Your claimable credit is driven by GSTR-2B, an auto-drafted statement of the invoices your suppliers reported. Rule 36(4) has limited ITC to invoices shown in GSTR-2B since 1 January 2022 — there is no provisional extra.

Since October 2024, every supplier invoice first lands in the Invoice Management System (IMS) on the GST portal, where you choose:

• Accept — goes into GSTR-2B as eligible credit.
• Reject — kept out of GSTR-2B (use for wrong or fake invoices).
• Pending — carried forward to the next period; not in this month's GSTR-2B.
• No action — treated as deemed accepted when GSTR-2B is generated.

A draft GSTR-2B is generated on the 14th of the following month. You can still change actions until you file GSTR-3B, regenerating GSTR-2B if needed.

How to claim ITC every month

1. 1

   Book purchases as they arrive

   Record invoice number, GSTIN, taxable value and tax heads in your purchase register.

2. 2

   Review IMS before the 14th

   Accept matching invoices, reject wrong ones, keep disputed ones pending.

   Open the GST portal
3. 3

   Reconcile with GSTR-2B

   Match by GSTIN + invoice number + amount. Chase suppliers whose invoices are missing.

4. 4

   Remove blocked and ineligible credit

   Strip out section 17(5) items and the exempt-supply share under Rules 42/43.

5. 5

   Claim in GSTR-3B Table 4

   Report eligible ITC and reversals in Table 4 of GSTR-3B by the 20th (monthly) or the 22nd/24th (quarterly QRMP filers).

The portal compares ITC claimed in GSTR-3B with GSTR-2B and issues an intimation (DRC-01C) when the excess crosses the limits in Rule 88D. Keep the reconciliation file for every month.

Blocked credits: section 17(5) list

Some purchases never give ITC even if all section 16 conditions are met. In summary:

2025 change — "plant and machinery". After the Supreme Court's Safari Retreats ruling (October 2024) suggested a building could qualify as a "plant", the Finance Act 2025 amended section 17(5)(d) retrospectively from 1 July 2017 to read "plant and machinery", with an explanation effective 1 October 2025 overriding contrary judgments. So GST on constructing a mall, office or warehouse for letting out remains blocked; only machinery fixed to earth by foundations (and those foundations) qualifies.

ITC reversals: 180-day rule, Rule 37A and exempt supplies

Unpaid suppliers — the 180 days rule

If you don't pay the invoice value plus tax within 180 days of the invoice date, add back the ITC in GSTR-3B for the period in which the 180 days end, with interest (Rule 37). Example: an invoice dated 10 January 2026 for ₹2,36,000 (₹36,000 GST), still unpaid on 9 July 2026, means ₹36,000 is reversed in the July 2026 return. Pay the supplier in September and you re-claim ₹36,000 in September's return — there is no time limit on re-availment. Reverse-charge supplies are outside this rule.

Supplier didn't file GSTR-3B — Rule 37A

If a supplier reported the invoice in GSTR-1 but didn't file GSTR-3B for that period by 30 September of the next financial year, you must reverse the related ITC by 30 November. Re-claim it when the supplier files.

Exempt and personal use — Rules 42 and 43

When common inputs, services or capital goods serve both taxable and exempt supplies, reverse the exempt share in proportion to turnover each month and true it up annually. For common capital goods, the credit is spread over a 5-year life for this calculation.

ITC deadlines to diary

14th monthly

Draft GSTR-2B generated from IMS actions

20th monthly

GSTR-3B due — claim and reverse ITC (22nd/24th for quarterly filers)

Day 180 from invoice

Unpaid supplier → reverse ITC with interest

30 September

Supplier's last chance to file previous-year GSTR-3B (Rule 37A)

30 November

Last date to claim previous-year ITC (s.16(4)) and to make Rule 37A reversals

ITC on capital goods

Unlike the old CENVAT rules, GST on capital goods (machinery, computers, furniture, tools) is claimed in full in the month you receive them, provided they are used for taxable supplies and you don't depreciate the tax portion.

Selling used capital goods. Under section 18(6), pay the higher of (a) the ITC taken minus 5 percentage points per quarter of use, or (b) GST on the sale price. Example: a CNC machine bought for ₹20,00,000 + ₹3,60,000 GST and sold after 10 quarters for ₹12,00,000. (a) ₹3,60,000 × (100 − 50)% = ₹1,80,000; (b) 18% of ₹12,00,000 = ₹2,16,000. You pay ₹2,16,000.

Multiple GSTINs. Since 1 April 2025 (Notification 16/2024-Central Tax), common input services billed to one office for several GSTINs under the same PAN must be distributed through an Input Service Distributor (ISD) registration.

How ITC is used: set-off order with a worked example

ITC is used in a fixed order (sections 49, 49A, 49B and Rule 88A):

1. IGST credit first pays IGST; any balance pays CGST and SGST in any order — but IGST credit must be fully used before CGST or SGST credit.
2. CGST credit pays CGST, then IGST. It can never pay SGST.
3. SGST credit pays SGST, then IGST. It can never pay CGST.

One month's set-off (₹)

₹60,000

Output liability

IGST 20,000 · CGST 20,000 · SGST 20,000

₹54,000

Credit available

IGST 30,000 · CGST 12,000 · SGST 12,000

₹6,000

Cash to pay

CGST 3,000 · SGST 3,000

How it works: IGST credit ₹30,000 pays IGST ₹20,000; the remaining ₹10,000 is split ₹5,000 to CGST and ₹5,000 to SGST. CGST credit ₹12,000 then covers ₹12,000 of the remaining ₹15,000 CGST; SGST credit does the same. ₹3,000 of each is paid in cash. Put the whole ₹10,000 IGST balance against CGST instead and ₹2,000 of CGST credit sits idle while you pay ₹8,000 of SGST in cash — so plan the split.

Common ITC mistakes and penalties

• Claiming on invoices not in GSTR-2B, or on the basis of your purchase register alone.
• Ignoring IMS, so a wrong supplier invoice is deemed accepted.
• Claiming GST on staff meals, a director's car or office renovation (blocked).
• Missing the 180-day reversal for slow-paid suppliers.
• Claiming previous-year credit after 30 November.

ITC wrongly availed and utilised attracts interest at 18% a year a year (section 50(3)), and can attract a penalty under section 122 of ₹10,000 or the credit involved, whichever is higher. Credit that is wrongly availed but sitting unused in the ledger attracts no interest — reverse it promptly.

Official links

• GST portal — IMS and GSTR-2BServices → Returns → Invoice Management System
• CGST Act section 16Eligibility and conditions
• CGST Act section 17Blocked credits
• IMS FAQs (GSTN)Accept, reject, pending, deemed acceptance
• GST Council FAQs on 56th meetingITC after GST 2.0 rate changes

What to do next

Set a monthly routine: review IMS before the 14th, reconcile with GSTR-2B, strip blocked credits, then file GSTR-3B. Before the 30 November cut-off, sweep last year's purchases for unclaimed credit. Check the tax split on any bill with our GST calculator, see how to calculate GST for the formulas behind it, and if you're not yet registered, start with GST registration — without it you can't claim any credit.

This is general information, not legal or tax advice — confirm on the official source or with a professional.

Frequently asked questions

What is input tax credit in simple words?

Input tax credit is the GST you paid on business purchases that you can subtract from the GST you collect on sales. If you collected ₹1,26,000 on sales and paid ₹90,000 on purchases used for those sales, you deposit only ₹36,000 in cash. It stops tax being charged on tax at every stage of the supply chain.

What is the last date to claim input tax credit for FY 2025-26?

Under section 16(4), ITC for invoices of a financial year must be claimed by 30 November following that year, or by the date you file the annual return, whichever is earlier. For 2025-26 invoices that means 30 November 2026 at the latest. Missed credit cannot be claimed later except in the narrow revoked-registration case under section 16(6).

Can I claim ITC if the invoice is not in GSTR-2B?

No. Since 1 January 2022, section 16(2)(aa) and Rule 36(4) allow credit only for invoices and debit notes your supplier has reported in GSTR-1 or IFF and that appear in your GSTR-2B. Ask the supplier to upload the invoice; once it appears in a later GSTR-2B, claim it then, within the section 16(4) time limit.

Is ITC available on a car purchased for business?

Generally no. Section 17(5)(a) blocks credit on motor vehicles seating up to 13 people, including the driver, unless you use them to resell vehicles, carry passengers for a fee or run a driving school. Insurance, repair and servicing of such cars are also blocked. Goods vehicles such as trucks and delivery vans are not blocked.

What happens if I don't pay my supplier within 180 days?

If you haven't paid the invoice value plus tax within 180 days of the invoice date, you must add back the ITC claimed on it in your next GSTR-3B, with interest. This doesn't apply to reverse-charge supplies. The credit isn't lost: you can re-claim it, without a time limit, once you pay the supplier.

Sources & verification

Figures on this page were checked against the sources below when it was last reviewed on 7 October 2026. Each rate and limit is stored once with its own official source and review date, and official update channels are monitored daily so changes are picked up. How we verify

1. 1.CGST Act, 2017 – Section 16 (Eligibility and conditions for taking ITC) — CBIC · accessed 7 October 2026
2. 2.CGST Act, 2017 – Section 17 (Apportionment and blocked credits) — CBIC · accessed 7 October 2026
3. 3.CGST Act, 2017 – Section 18 (Availability of credit in special circumstances) — CBIC · accessed 7 October 2026
4. 4.CGST Act, 2017 – Section 50 (Interest) — CBIC · accessed 7 October 2026
5. 5.FAQs on Invoice Management System (IMS) — GSTN · accessed 7 October 2026
6. 6.FAQs on the decisions of the 56th GST Council meeting — GST Council · accessed 7 October 2026
7. 7.Rule 37A: ITC reversal for non-payment of tax by supplier — ClearTax · accessed 7 October 2026
8. 8.Rule 37 of CGST/SGST Rules: ITC reversal on non-payment within 180 days — ClearTax · accessed 7 October 2026
9. 9.Clarifications on Rule 88A – order of utilisation of ITC — Taxmann · accessed 7 October 2026