—Guide
Input Tax Credit Under GST: Conditions, Time Limits and Blocked Credits
The conditions for claiming GST input tax credit, the deadline to claim it, the credits that are blocked, and the reversals businesses often miss.
Input tax credit lets a business offset GST paid on purchases against GST due on sales. It's valuable — and closely policed. This guide covers the conditions, time limits, and the credits you can't claim.
Conditions for Claiming Credit
Under Section 16 of the CGST Act, you can claim credit only if:
- You hold a valid tax invoice or debit note.
- You've received the goods or services.
- The supplier has reported the invoice, so it appears in your GSTR-2B.
- The supplier has actually paid the tax to the government.
- You've filed your own return.
The Time Limit
Credit on invoices for a financial year must be claimed by 30 November of the following year, or the date you file the annual return for that year, whichever is earlier. After that, it's lost.
Blocked Credits
Section 17(5) blocks credit on certain items, even if used in business. They include:
- Motor vehicles for transporting persons with seating up to 13, with exceptions like vehicle dealers, driving schools, and passenger transport businesses.
- Food and beverages, outdoor catering, beauty treatment, and health services, with limited exceptions.
- Membership of clubs, health and fitness centres.
- Rent-a-cab, life and health insurance, with exceptions where they're legally required for employees.
- Works contracts and goods or services for construction of immovable property for your own use, other than plant and machinery.
- Goods lost, stolen, destroyed, written off, or given as free samples or gifts.
- Goods or services used for personal consumption.
Reversals
- If you don't pay a supplier within 180 days of the invoice, reverse the credit, and reclaim it when you pay.
- Credit on inputs used for exempt supplies must be reversed proportionately.
- Credit on capital goods used partly for exempt supplies needs its own calculation.
Consequences of Wrong Credit
Credit claimed in breach of the conditions is recoverable with interest at 18%, and may attract penalties.
Getting Help
Think Filing reconciles credit monthly, identifies blocked and ineligible items, and makes sure eligible credit is claimed in time.