GST Input Tax Credit (ITC)
Input Tax Credit is the mechanism under India’s Goods and Services Tax that lets a registered business offset the GST it has paid on business purchases against the GST it collects on sales.
In plain English
ITC prevents tax cascading by taxing only value added at each stage. Claiming it depends on conditions being met — possession of a valid tax invoice, receipt of the goods or services, the supplier having actually paid the tax to government, and the recipient filing the required returns. Where a supplier defaults, the recipient’s credit can be at risk.
Why it matters
ITC is working capital. Blocked or reversed credit directly reduces cash available to the business, and mismatches between a business’s claimed credit and its suppliers’ filings are a routine trigger for departmental notices.
Example
A manufacturer pays GST on raw materials and charges GST on finished goods. It remits only the difference to government, having set off the input tax already paid — provided its suppliers have filed and paid correctly.
Under Indian law
ITC is governed principally by Sections 16 and 17 of the CGST Act, 2017, which set conditions for eligibility and list blocked credits. Reconciliation against auto-populated returns is central to defending a claim.
How LexVio handles it
LexVio’s Tax AI covers GST computation alongside income tax and TDS analysis, and GST is one of the four regulators tracked in its compliance module.
Accounting & FinTech AutomationCommon questions
Can ITC be denied if the supplier does not pay GST?
Yes. One of the statutory conditions for claiming ITC is that the tax charged has actually been paid to government by the supplier, which is why supplier compliance monitoring matters to the recipient.
What are blocked credits under GST?
Section 17(5) of the CGST Act, 2017 lists categories on which ITC is not available, notwithstanding that the purchase is used in business. The list should be checked against its current text as it has been amended.