Input Tax Credit (ITC) Basics
Last updated: 2 July 2026 · 6 min read
Input tax credit is the mechanism that stops GST from cascading. You offset the GST paid on your purchases against the GST you collect on sales, so you effectively pay tax only on the value you add.
A simple example
Suppose you buy stock for ₹10,000 + ₹1,800 GST (18%) and sell it for ₹15,000 + ₹2,700 GST. Your output tax is ₹2,700, your input tax credit is ₹1,800, so you pay only ₹900 in cash. That ₹900 is 18% of your ₹5,000 value addition.
Key conditions to claim ITC
- You have a valid tax invoice or debit note.
- You have actually received the goods or services.
- The supplier has reported the invoice and paid the tax (it must appear in your auto-drafted statement).
- You have filed the relevant return.
When ITC is blocked
Certain items are ineligible (blocked credits) — for example most motor vehicles for personal use, and goods/services for personal consumption. Composition dealers cannot claim ITC at all.
FAQ
What is input tax credit?
Credit for GST paid on business purchases, set off against GST collected on sales, so you pay tax only on your value addition.
Related: GST invoice format, common GST mistakes, GST bill generator.