Input tax credit is a crucial benefit under GST that helps Indian businesses reduce their tax burden. t helps businesses reduce tax costs and improve cash flow. However, many taxpayers still face issues due to mismatches, missed claims, and complex reconciling. Let’s see how to claim and reconcile ITC with simple steps, practical tips, and compliance insights.
What is Input Tax Credit and Who Can Claim It:
Input tax credit (ITC) allows a GST-registered business to offset the tax paid on purchases (inputs) against its final tax liability. For example, if a business pays ₹15,000 as GST for inputs and collects ₹20,000 GST on sales, it can claim ₹15,000 as ITC, paying only ₹5,000 to the government.
You can claim ITC if you:
- Hold a valid tax invoice or debit note from a registered supplier.
- Have received the goods or services (or last installment, if delivered in parts).
- See the supplier’s invoice reflected in your auto-generated statement (like GSTR-2B) on the GST portal.
However, some credits are blocked — personal expenses, certain services (like club memberships, health services), or goods for personal use cannot be claimed.
How to Claim ITC:
To claim input tax credit properly, follow these steps:
- Verify Invoices and Documents — Collect all tax invoices, debit notes, bill of entry (for imports), and credit notes (if applicable). These documents must comply with GST rules.
- Check GSTR-2B / GSTR-2A — The auto-generated statement GSTR-2B (or older GSTR-2A) on the GST portal reflects invoices uploaded by your suppliers. Only the invoices showing here (or pending due to supplier non-filing) are eligible.
- Reconcile with Purchase Register — Match the invoices in GSTR-2B with your internal purchase records or books. This ensures you claim only those credits that you actually received.
- Claim ITC in Return (GSTR-3B) — Once reconciliation is done, claim eligible ITC in GSTR-3B return under Table 4. Include eligible ITC, any reversals, and reclaims correctly.
- Maintain Records — Keep all documents (invoices, delivery challans, debit/credit notes, payment proofs) for at least 6 years. This helps in audits and defends your claims if challenged.
Why Reconciliation Matters: Avoid Mistakes and Penalties
Reconciling ITC is mandatory, not optional. The portal now uses powerful backend tools — AI-powered invoice matching and real-time validations — to detect mismatches, unfiled invoices, wrong months, or ineligible credits. Many ITC disallowances happen because invoices in your books do not match the supplier’s uploads.
If GST credited in GSTR-2B doesn’t match your purchase records, or supplier hasn’t filed returns, you must exclude those credits. Additionally, there are new restrictions under Rule 86B: registered persons whose taxable supplies (excluding exempt or zero-rated) exceed ₹50 lakh in a month cannot use more than 99% of their output tax liability from ITC alone.
Best Practices for Smooth ITC Claim and Reconciliation:
- Follow a monthly reconciliation routine right after GSTR-2B is generated (usually by 14th of next month). This helps catch discrepancies early.
- Communicate with suppliers promptly if their invoices are not uploaded or mismatch. Encourage timely GST-compliant filing.
- Use digitised accounting or GST-compliance software to manage invoices, reconcile and file returns efficiently. This reduces manual errors.
- Claim ITC only before the statutory deadline — generally by the due date of annual return or 30 November next financial year (whichever is earlier) for Indian businesses.
- Periodically review eligibility — especially for capital goods, mixed-use goods, or exempt-supply related expenses.
Conclusion:
Claiming ITC under GST can help Indian businesses reduce tax burden and improve working capital. However, claiming correctly matters as much as being eligible. Reconcile invoices, maintain records, follow GSTR-2B data, and file accurately in GSTR-3B to enjoy the full benefit. In addition, stay alert to reversals if usage changes or payment deadlines slip. Explore more GST and finance insights now!
– Ketaki Dandekar (Team Arthology)
Read more about How to Claim Input Tax Credit here – https://cleartax.in/how-to-claim-it