Input Tax Credit (ITC) — What You Can and Cannot Claim Under GST

Input Tax Credit is the mechanism allowing GST-registered businesses to deduct the GST paid on business purchases from the GST collected on sales. Only the net difference — output GST minus input GST — is remitted to the government. ITC gives GST its non-cascading nature, ensuring tax is not levied on tax across the supply chain. It is available on all business purchases except those specifically blocked under Section 17(5) of the CGST Act.

No. Health insurance premium paid for employees is specifically listed in Section 17(5)(b) of the CGST Act as a blocked credit. The 18% GST paid on employee health insurance premiums cannot be claimed as ITC regardless of whether the insurance is provided as a statutory benefit or voluntarily. This is one of the most commonly misunderstood blocked credit provisions — many businesses incorrectly claim ITC on health insurance GST, which invites demand and penalty during GST audit.

ITC on motor vehicles for transporting persons with seating capacity up to 13 persons — cars, SUVs, and vans — is blocked under Section 17(5)(a). Businesses cannot claim ITC on cars purchased for director use, employee commute, or office transportation. Exceptions apply for vehicle dealers selling cars as stock-in-trade, tour operators, transportation service providers, and companies transporting employees where such transport is mandated by law. Heavy goods vehicles and trucks for goods transport are eligible for ITC.

GSTR-2B is the auto-generated monthly ITC statement on the GST portal, generated on the 14th of each month. It reflects all invoices declared by suppliers in their GSTR-1 filings up to the 13th of that month. Under current GST rules, ITC can only be claimed to the extent it appears in GSTR-2B. Businesses must download GSTR-2B monthly, reconcile it against their purchase register, and claim only matching ITC in GSTR-3B. Invoices not in GSTR-2B cannot be claimed until the supplier files their return.

If a supplier does not file their GSTR-1, the corresponding invoice does not appear in the buyer's GSTR-2B and the buyer cannot legally claim ITC on that purchase. The buyer should contact the supplier and request filing. If the supplier files the return by the 13th of the following month, ITC appears in the next GSTR-2B. ITC not appearing in GSTR-2B by the September return of the following financial year is permanently lost. This supplier compliance risk makes vendor management a critical part of GST compliance.

No. GST paid on construction services for own immovable property — building an office, factory, or godown for own use — is blocked under Section 17(5)(c). Works contract services received for construction of own premises are also blocked. The exception is for real estate developers who construct buildings for sale — they can claim ITC on construction inputs since construction is their core business activity. For all other businesses building their own premises, construction GST is an irrecoverable cost.

ITC for any financial year must be claimed by the earlier of: the due date of the GSTR-3B return for September of the next financial year, or the date of filing the annual return (GSTR-9). For FY 2025-26 purchases, ITC must be claimed by 20 October 2026 (due date of September 2026 GSTR-3B) or by the GSTR-9 filing date, whichever is earlier. ITC missed after this deadline is permanently lost and cannot be carried forward.

Yes. Under Rule 37 of CGST Rules, if a registered buyer claims ITC on a purchase invoice but fails to pay the supplier within 180 days from the invoice date, the ITC must be reversed in the GSTR-3B of the relevant tax period. Interest at 18% per annum also applies on the reversed amount from the date of ITC claim to the date of reversal. Once the payment is eventually made to the supplier, the reversed ITC can be reclaimed in the GSTR-3B of the month in which payment is made.