Introduction

Input Tax Credit (ITC) lies at the heart of India’s GST system — it prevents double taxation and ensures that tax is paid only on value addition.

However, frequent regulatory changes and strict matching rules under Rule 36(4) have made claiming ITC more challenging than ever for small and mid-sized businesses.

In this blog, Bisways Consulting Group explains ITC eligibility, documentation essentials, and common errors that trigger reversals or departmental notices — helping you claim credits accurately and confidently.

Understanding Input Tax Credit (ITC)

ITC allows registered businesses to offset the GST paid on purchases (inputs) against the GST collected on sales (output).
Simply put — if you’ve paid ₹50,000 GST on inputs and collected ₹80,000 on your invoices, you only remit ₹30,000 to the government.
This mechanism ensures seamless credit flow across the supply chain and keeps goods and services affordable by removing cascading tax effects.

Who Is Eligible to Claim ITC

A business can claim ITC only when all of the following conditions are met:

• You possess a valid tax invoice or debit note issued by a GST-registered supplier.

• The goods or services are received and used for business purposes.

• The supplier has uploaded the invoice in GSTR-1, and it reflects in your GSTR-2B.

• You have paid the supplier within 180 days from the date of invoice.

• The supplier has paid GST to the Government.

• You have filed your GSTR-3B return and reported the input accordingly

❌ Ineligible ITC examples:

• Motor vehicles (except for training or transportation).

• Works contract or construction for own use.

• Personal consumption or employee-related benefits (canteen, health insurance, etc.).

• Goods lost, stolen, or destroyed.

Rule 36(4) – Tightened ITC Claim Conditions

Earlier, taxpayers could claim up to 5 % provisional credit for invoices not uploaded by vendors. From January 2022, this relaxation was removed — ITC can now be claimed only for invoices appearing in GSTR-2B.

Practical Tip:

Before filing GSTR-3B, reconcile GSTR-2B with your purchase register to avoid claiming ineligible credit.

Essential Documents for ITC Claims

Keep the following ready to support every claim:

• Tax invoice or debit note with both GSTINs.

• Proof of goods receipt (delivery challan, e-way bill, GRN).

• Payment proof (bank transfer, UPI, cheque)

• GSTR-2B reconciliation statement

• Input service invoices such as rent, consultancy, or software subscriptions.

A complete document trail ensures smooth verification during GST audit or departmental review.

Common Mistakes That Lead to ITC Reversal

• 1.Claiming ITC before goods/services are received.

• 2.Failing to match GSTR-2B with books.

• 3.Ignoring the 180-day payment condition to vendors.

• 4.Claiming ITC on ineligible items or personal expenses.

• 5.Vendor non-compliance — supplier not filing GSTR-1/3B.

• 6.Incorrect GSTIN or invoice mismatch.

Even a small mismatch can freeze thousands of rupees in ITC or attract notices under Section 73/74.

Monthly Reconciliation Best Practice

To stay compliant:

• 1.Download GSTR-2B each month.

• 2.Compare with your purchase register.

• 3.Identify missing or mismatched invoices.

• 4.Communicate promptly with vendors to upload pending data.

• 5.Adjust your ITC claim before filing GSTR-3B.

• 6.Maintain a reconciliation summary for annual audit

Modern tools such as Zoho Books, Tally Prime, or ClearTax GST automate this process and ensure accuracy.

Interest & Penalties for Wrong Claims

• Interest @ 18 % p.a. for ineligible ITC wrongly availed and utilised.

• Penalty: 10 % of tax or ₹10,000 — whichever is higher.

• Rectify through Form DRC-03 to make voluntary payment and avoid escalation.

ITC in Annual Return (Form GSTR-9)

Ensure claimed ITC matches:

• Books of Accounts

• GSTR-3B

• GSTR-2B

Reconcile before filing the annual return. Differences may invite scrutiny or reversal orders.

Conclusion

Input Tax Credit is a powerful benefit — but only when claimed responsibly. Regular reconciliation, strong documentation, and vendor discipline ensure you never lose eligible credit or face GST disputes.