How to Claim Input Tax Credit (ITC) Correctly Under GST

Introduction

Input Tax Credit (ITC) is one of the key features of India’s GST regime. It allows businesses to claim credit for taxes paid on purchases used in the course of business. However, incorrect ITC claims are a major reason for GST notices and penalties.

If you want to ensure a 100% compliant GST ITC claim, this guide by Makwana Sweta & Associates, trusted Chartered Accountants in Mumbai, walks you through the rules, documentation, conditions, and updates as per Budget 2025.

What is Input Tax Credit (ITC)?

ITC allows you to reduce the tax you pay on sales (output tax) by claiming credit for the GST paid on purchases (input tax). For example, if you paid Rs. 10,000 GST on purchases and collected Rs. 15,000 GST on sales, you only pay Rs. 5,000 to the government.

ITC = Output GST – Input GST

This keeps the tax system fair and avoids tax cascading.

Eligibility Conditions for Claiming ITC

You can claim ITC only if:

You are a registered taxpayer under GST.
You have a valid tax invoice or debit note.
Goods/services are received.
Supplier has uploaded invoice in GSTR-1.
Supplier has paid tax to the government.
You have filed your GST returns (GSTR-3B).

Note: ITC is only available for business use. Personal expenses are not eligible.

Documents Required for ITC Claim

Keep the following ready:

Tax invoice from registered supplier
Debit or credit note
Bill of entry (for imports)
Delivery challans
Proof of receipt of goods/services
Payment proof to supplier (bank transfer/cheque)

Time Limit for Claiming ITC (Updated for FY 2024-25)

ITC must be claimed on or before:

30th November of the following financial year,
OR
Date of filing annual return (GSTR-9)

Whichever is earlier.

For FY 2024-25, the deadline is 30th November 2025, unless GSTR-9 is filed earlier.

New Rule: ITC Matching with GSTR-2B

As per the new GST rules:

ITC can be claimed only on invoices reflected in GSTR-2B (auto-generated form)
Manually added invoices in GSTR-3B are not allowed

Ensure supplier compliance or risk ITC rejection.

Blocked ITC: What You Cannot Claim

ITC is not allowed on:

Personal expenses
Motor vehicles (exceptions apply)
Club memberships, health insurance
Goods lost/stolen/destroyed
Free samples or gifts

Refer to Section 17(5) of CGST Act for full list.

How to Claim ITC Correctly: Step-by-Step

Reconcile GSTR-2B with purchase invoices monthly
Highlight mismatches and follow up with non-compliant suppliers
Claim only eligible ITC in GSTR-3B
Maintain audit-ready documentation
Avoid backdated or duplicate entries

Penalty for Incorrect ITC Claim

Interest @18% on excess/wrong ITC claimed
Penalty up to Rs. 10,000 or tax amount (whichever higher)
In severe cases, it may lead to suspension of GST registration

GST authorities are using AI-based tools to detect fake or invalid ITC claims.

Common Mistakes to Avoid

Not matching GSTR-2B before claiming ITC
Claiming ITC without invoice
Relying on non-compliant vendors
Claiming ITC for exempt supplies
Missing the time limit for claiming

Tips to Maximise Legitimate ITC

Choose GST-compliant vendors
Track ITC monthly, not yearly
Use professional software for reconciliation
Work with a CA in Mumbai to stay 100% compliant

Final Words

Claiming ITC is a right, but it comes with responsibility. A well-managed GST ITC claim process helps save tax, boost working capital, and avoid legal issues.

Need expert guidance? Makwana Sweta & Associates, your go-to Tax Consultants in Mumbai, provide comprehensive GST Services in Mumbai and PAN India.

Useful Links

Outbound: GST Portal – ITC Reference
Inbound: Our GST Service