How GST Input Tax Credit Works: A Small Business Owner's Guide
ITC eligibility, the GSTR-2B matching, blocked credits, and common errors that trigger notices.
Input Tax Credit is what keeps GST from becoming a cascading tax — you pay GST on your sales, but you can offset GST you've already paid on business purchases. Getting ITC wrong is the #1 reason small businesses get GST notices.
Basic ITC Eligibility
- Possession of valid tax invoice from supplier
- Goods/services actually received
- Tax has been paid to government by supplier
- Return (GSTR-3B) filed by you
- Supplier filed GSTR-1 and the invoice reflects in your GSTR-2B
Blocked Credits — Never Claim
- Motor vehicles (except for transport business / driving school)
- Food, beverages, outdoor catering (unless your output is the same)
- Membership of club / health / fitness centre
- Travel benefits to employees on vacation
- Construction of immovable property (other than P&M)
- Goods lost, stolen, destroyed, gifted as free samples
Compute GST on invoices: GST Calculator → https://calculatordesk.in/gst-calculator
The 2B Matching Reality
Since Jan 2022, ITC can be claimed only if the invoice appears in your GSTR-2B (auto-generated from suppliers' GSTR-1). If your supplier doesn't file on time, you can't claim — chase them or lose the credit. This is why most businesses now pay only after seeing invoice in 2B.
Frequently Asked Questions
What is the time limit to claim ITC?
Earliest of (a) 30 November of the following financial year, or (b) date of filing the annual return for that year. After this, ITC is lost.
Can I claim ITC on petrol?
No. Petrol, diesel, ATF, and natural gas are still outside GST — they attract excise/VAT, not GST. So no ITC on these fuels.
Is ITC available on composition scheme purchases?
No. A composition dealer does not charge GST in their invoice, so you cannot claim ITC on purchases from a composition dealer.