Input tax credit (ITC) is the GST you paid on your business purchases, which you can subtract from the GST you owe on your sales. If you paid ₹18,000 GST on raw materials and collected ₹27,000 GST from customers, you pay the government only the difference, ₹9,000. That is the whole idea: GST is meant to be a tax on value added at each stage, not a tax on tax.
The idea is simple. The conditions are not. This guide explains who can claim ITC, the conditions that must all be met, the time limit, what is blocked, and how the rules apply to employee costs such as canteen food, group insurance and staff cabs. It reflects the law as of September 2026, including the GST rate changes of September 2025 and the Invoice Management System.
A manufacturer in Pune buys raw material from a supplier in Pune and sells finished goods to a customer in the same state. Both are taxed at 18%.
| Value | CGST (9%) | SGST (9%) | Total GST | |
|---|---|---|---|---|
| Purchase (input) | ₹1,00,000 | ₹9,000 | ₹9,000 | ₹18,000 |
| Sale (output) | ₹1,50,000 | ₹13,500 | ₹13,500 | ₹27,000 |
| Paid in cash after ITC | ₹4,500 | ₹4,500 | ₹9,000 |
Without ITC the manufacturer would pay ₹27,000, and the customer would ultimately bear tax on the supplier’s tax as well. With ITC, GST is only collected on the ₹50,000 of value the manufacturer added.
Under Section 16(1) of the CGST Act, a registered person can take credit for GST charged on goods and services, including capital goods, that are “used or intended to be used in the course or furtherance of business”. That includes:
If a purchase is used partly for business and partly for personal or exempt purposes, only the business share qualifies (Section 17(1) and (2), with the calculation in Rules 42 and 43).
Section 16(2) lists the conditions. Missing any one of them means no credit.
Two further rules can take back credit you have already claimed:
Also, you cannot claim ITC on the tax portion of an asset if you also claim depreciation on that tax portion for income tax (Section 16(3)).
Under Section 16(4), you must claim ITC for an invoice by 30 November after the end of the financial year it belongs to, or by the date you file your annual return, whichever is earlier. For an invoice dated any time in 2025-26, the last chance is the GSTR-3B filed by 30 November 2026, unless you file the annual return before then.
The 180-day payment reversal is an exception: credit reclaimed after you pay a supplier is not subject to this deadline.
Since October 2024, every invoice your suppliers report shows up in the Invoice Management System (IMS) on the GST portal. For each one you can:
Acting on invoices is optional. Anything you leave untouched is treated as accepted when GSTR-2B is generated on the 14th of the month. You can still change your decisions and regenerate GSTR-2B before filing GSTR-3B.
From the October 2025 tax period, credit notes can only be kept pending for one return period before they are deemed accepted, and when you accept a credit note you can say how much ITC you are reversing.
The sales side of GSTR-3B (the tax liability in Table 3) has been locked to what you reported in GSTR-1 since the July 2025 return period; corrections go through GSTR-1A. As of September 2026, the ITC table (Table 4) is still editable. Locking it has been widely discussed but has not been notified. Either way, the practical advice is the same: reconcile your purchase register with GSTR-2B every month, before you file.
Section 17(5) blocks credit on certain purchases even when they are used in business. The main ones:
For food, travel, insurance, vehicles and memberships, there is an important exception: if a law requires you to provide it to employees, the credit is allowed. We cover what that means in practice below.
This is where finance and HR teams most often get ITC wrong. Salaries themselves are not a supply under GST, so there is no GST on them and no credit. But many employee benefits are bought from vendors who charge GST.
| Employee cost | ITC allowed? |
|---|---|
| Canteen, meals or catering | Blocked, unless a labour law requires you to provide a canteen. Even then, only the share the employer pays qualifies, not the amount recovered from employees. |
| Group health or life insurance | Blocked, unless a law requires you to provide it. Group policies are still taxed at 18%; the 2025 exemption applies only to individual policies. |
| Staff cabs (vehicles for 13 or fewer people) | Blocked, unless the law requires transport, for example state rules for women working night shifts. |
| Gym or club memberships | Blocked, unless required by law. |
| Leave travel or holiday travel | Blocked, unless required by law. Ordinary business travel is not affected. |
| Gifts to employees | Gifts up to ₹50,000 per employee in a year are not treated as a supply, so no GST is charged on them. But credit on goods bought as gifts is blocked. |
| Perquisites given under the employment contract | Not subject to GST, because they are part of the employee’s pay. |
Proposed change (October 2026): at its 57th meeting on 8 October 2026, the GST Council recommended amending Section 17(5) to remove the block on credit for, among other things, outdoor catering, health and life insurance, free samples, and goods written off when their shelf life expires. If Parliament and the states pass that amendment, voluntary group health or life cover and catered meals for staff would become eligible for ITC. Reports say the changes will be brought in over phases starting early next year, but no amendment has been passed or notified yet. Until it is, the rules in the table above still apply, so do not claim these credits in your GSTR-3B yet. We will update this page when the amendment is notified.
If you are unsure whether a law requires a benefit, get your chartered accountant’s view in writing. A wrong claim has to be paid back with interest at 18% a year.
Credit sits in your electronic credit ledger, split by tax type. It must be used in this order (Section 49A and Rule 88A):
CGST credit can never pay SGST, and SGST credit can never pay CGST.
Example: you have ₹10,000 of IGST credit, and you owe ₹2,000 IGST, ₹6,000 CGST and ₹6,000 SGST. The IGST credit pays the ₹2,000 IGST first, and the remaining ₹8,000 can be split, for example ₹4,000 each, against CGST and SGST. You then pay ₹2,000 CGST and ₹2,000 SGST in cash.
From 22 September 2025, GST moved to two main rates, 5% and 18%, plus a 40% rate for a small list of goods. The 12% and 28% slabs were removed. For ITC:
ITC stands for input tax credit: the GST paid on business purchases that can be set off against the GST payable on sales.
Any business registered under GST that uses the purchases for its business, except composition scheme taxpayers, who cannot claim ITC.
The GSTR-3B filed by 30 November 2026, or the date you file the 2025-26 annual return, whichever is earlier.
No. The invoice must appear in your GSTR-2B, which happens only after your supplier reports it.
Only if a law requires you to provide that insurance. Voluntary group health cover is a blocked credit. On 8 October 2026 the GST Council recommended lifting this block, but that needs an amendment to the CGST Act, which has not been made yet.
No. Services provided by an employee to an employer in the course of employment are not a supply under GST, so salaries carry no GST and no ITC.
For official guidance, see the GST portal and the CBIC tax information portal.
This article reflects the CGST Act and rules as of 9 October 2026, including the recommendations of the 57th GST Council meeting on 8 October 2026, which are not yet law. We will update this page when the amendments are notified. It is general information, not tax advice.
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