Input Tax Credit (ITC) refers to the Goods and Services Tax (GST) paid by a registered taxpayer on the purchase of goods and services that are used or intended to be used for business purposes.

The ITC paid on these purchases can be deducted from the GST payable on the taxpayer’s sales, but only if specific conditions, as outlined in the GST law, are met. These conditions are largely in line with the pre-GST rules, although certain new requirements—such as the use of GSTR-2B—have made the process more stringent.

Conditions to Claim Input Tax Credit under GST

Under Section 16 of the CGST Act, a registered taxpayer must meet the following conditions to be eligible for ITC:

1. Business Use: The goods or services must be used for business purposes only, and not for personal use. If the goods or services are used for personal reasons, the ITC cannot be claimed.

2. Valid Documentation: The taxpayer must possess a valid tax invoice, debit note, or another document that proves payment of GST on the purchase. Without this documentation, the ITC cannot be claimed.

3. Supplier’s GSTR-1 Filing: The tax invoice or debit note provided by the supplier must be uploaded in the supplier’s GSTR-1 return, and the details must appear in the buyer’s GSTR-2B, which summarizes the ITC available to the taxpayer. Only then can the ITC be claimed.

As of January 1, 2022, the provision allowing provisional ITC claims has been discontinued. Previously, taxpayers could claim an additional 5% of the ITC shown in GSTR-2B (as provisional ITC) in their GSTR-3B return. However, this is no longer allowed. Now, the ITC claimed in GSTR-3B must match exactly with the ITC available in GSTR-2B.

This change makes it essential for taxpayers to regularly reconcile their purchase records with the details in GSTR-2B to ensure compliance with the updated GST requirements.

Conclusion

In conclusion, to claim ITC under GST, taxpayers must ensure that their purchases are for business use, they hold valid documentation, and the supplier has uploaded the necessary details in GSTR-1, which reflect in GSTR-2B. With the elimination of provisional ITC claims, accurate reconciliation of purchase records with GSTR-2B has become more important than ever to maintain compliance with the GST law.