Input tax credit
What Input tax credit means, where you will meet it and what it means for your business.
DefinitionInput tax credit (ITC) is the GST a registered business paid on its purchases that it can set off against the GST it collects on sales, so tax is paid only on the value added.
GST is designed as a chain: each business pays tax on the value it adds and passes credit down the line. If you buy a laptop for ₹1 lakh plus ₹18,000 GST and bill a client ₹5 lakh plus ₹90,000 GST, you deposit ₹72,000 and keep the ₹18,000 as credit. Credit is available only if you hold a valid tax invoice, the supplier has filed GSTR-1 so it shows in your GSTR-2B, you have received the goods or service, and the supplier has paid the tax. Some items are blocked, such as cars, food and personal expenses, and composition dealers get no credit at all. You meet ITC in every GSTR-3B. What it means for you: pay suppliers within 180 days and chase those who file late, because unmatched credit is reversed with interest.