Input Tax Credit (ITC) is one of the cornerstones of the Goods and Services Tax (GST) system. It ensures that tax is collected only on the value addition at each stage, preventing the dreaded “tax on tax” or cascading effect.
But here’s the catch: claiming ITC isn’t as simple as uploading invoices and relaxing. The GST law has laid down strict conditions and restrictions to ensure that credit is taken only by genuine taxpayers, backed by genuine transactions. A single slip – like a mismatched invoice or a missing return from your supplier – can put your ITC claim at risk.
In this blog, we’ll break down the conditions for availing ITC under GST in plain English, with references to the CGST Act, important case laws, practical examples, and FAQs so you never lose credit you rightfully deserve.
Legal Foundation of ITC
The primary provisions governing ITC are found in:
- Section 16, CGST Act, 2017 – Eligibility and conditions for taking ITC.
- Section 17, CGST Act, 2017 – Apportionment and blocked credits.
- Section 18, CGST Act, 2017 – Availability of credit in special circumstances.
- Rules 36, 37, 42, 43 of CGST Rules, 2017 – Procedural and documentary requirements.
Case law spotlight: McLeod Russel India Ltd. vs. Union of India [2025] 172 taxmann.com 663 (Gauhati HC) held that ITC cannot be denied to a buyer merely because the supplier failed to deposit tax, provided the buyer has fulfilled all statutory conditions.
Core Conditions for Availing ITC
1. Possession of a Valid Tax Invoice or Document
- Must have a tax invoice, debit note, or other prescribed document (Section 16(2)(a)).
- Document must contain GSTIN, HSN/SAC, taxable value, tax charged, and supplier details.
Example: If your supplier issues an invoice without their GSTIN, you can’t claim ITC until it’s corrected.
2. Receipt of Goods or Services
- ITC can only be claimed once goods/services are actually received (Section 16(2)(b)).
- Receipt can be direct, through an agent, or even via bill-to-ship-to transactions.
Scenario: You paid your vendor but goods are still in transit at month-end. ITC becomes available only once goods reach you.
3. Supplier Has Paid Tax to Government
- A critical condition: The supplier must have actually paid the GST to the Government (Section 16(2)(c)).
- Payment can be in cash or via ITC utilization.
Case Law: In D.Y. Beathel Enterprises vs. State Tax Officer (Madras HC, 2021), it was held that ITC cannot be denied solely on the ground of non-payment of tax by the supplier without investigating the supplier’s default.
4. Filing of Return (GSTR-3B) by the Recipient
- ITC is available only when the recipient has filed the return under Section 39 (GSTR-3B).
5. ITC Must Appear in GSTR-2B
- Rule 36(4) now restricts ITC to invoices appearing in auto-drafted GSTR-2B.
- No more 5%/10% provisional ITC leeway (removed from Jan 2022).
6. Payment to Supplier Within 180 Days
- If the recipient does not pay the supplier (including tax) within 180 days from the date of invoice, ITC is reversed with interest (Rule 37).
- Once payment is made, ITC can be re-availed.
7. Time Limit for Availing ITC
- As per Section 16(4): ITC must be claimed by 30th November following the end of the financial year, or before filing annual return, whichever is earlier.
Example: For FY 2024-25, ITC on invoices must be claimed by 30th November 2025.
8. ITC Not Blocked
Section 17(5) lists blocked credits, such as:
- Motor vehicles (except for transport/goods/passenger services).
- Food, beverages, outdoor catering, beauty treatments.
- Membership of clubs, health & fitness.
- Works contracts (except for plant/machinery).
- Personal consumption items.
Step-by-Step Checklist for ITC Claim
- ✅ Collect valid GST invoice/debit note.
- ✅ Ensure goods/services are received.
- ✅ Confirm supplier has filed GSTR-1 and tax reflects in GSTR-2B.
- ✅ Make payment to supplier within 180 days.
- ✅ File your GSTR-3B correctly.
- ✅ Claim before 30th November deadline.
- ✅ Verify it’s not a blocked credit under Section 17(5).
Real-Life Examples
- Case 1 – Payment Delay: ABC Ltd. buys machinery worth ₹10 lakh + GST. Due to cash crunch, it pays the supplier after 200 days. ITC claimed earlier must be reversed with interest, then re-availed once payment is made.
- Case 2 – Supplier Default: XYZ Pvt. Ltd. purchased raw material, but supplier failed to pay GST. Gauhati HC (McLeod Russel India Ltd., 2025) clarified that bona fide buyers should not be punished for supplier’s fault – strong precedent for litigation.
- Case 3 – Blocked Credit: A hotel claims ITC on food items served to staff. Section 17(5) denies such ITC.
Frequently Asked Questions (FAQs)
Q1. Can I claim ITC on goods received in installments?
Yes. ITC is allowed on receipt of the last lot or installment.
Q2. What if my supplier files GSTR-1 but not GSTR-3B?
Legally, ITC is linked to tax payment by supplier. Courts (e.g., McLeod Russel India Ltd., 2025) protect buyers if due diligence is shown.
Q3. Is ITC available on business gifts?
No. ITC is blocked if goods are distributed free of cost.
Q4. Can ITC be claimed after annual return is filed?
No. Section 16(4) bars ITC once the deadline has passed.
Conclusion
Availing ITC under GST isn’t just a compliance formality – it’s a careful balancing act between documents, timelines, supplier compliance, and legal vigilance. Missing a step can mean losing rightful credit or facing demand notices.
✅ Always reconcile your books with GSTR-2B.
✅ Keep an eye on blocked credits.
✅ Pay vendors within 180 days.
✅ Don’t miss the 30th November deadline.
By following these conditions diligently, businesses can optimize cash flow, stay compliant, and avoid disputes with GST authorities. And if disputes do arise, case laws like McLeod Russel India Ltd. and D.Y. Beathel Enterprises provide strong defense tools for taxpayers.
