Input Tax Credit (ITC) Reconciliation

What is input tax credit?

Input tax credit (ITC) lets a GST-registered business deduct the GST it pays on purchases from the GST it owes on sales. It's what makes GST a tax on value added rather than on every transaction.

But credit isn't automatic. It depends on conditions — including your supplier reporting the invoice and paying the tax — and some purchases are blocked altogether. ITC reconciliation matches your purchase records with GSTR-2B, checks eligibility, and makes sure credit is claimed in time.

The key terms

Credit depends on a few conditions and rules:

Conditions for credit

You need a valid tax invoice, the goods or services must be received, the supplier must have reported the invoice and paid the tax, and you must have filed your return.

GSTR-2B

An auto-generated statement of credit available from suppliers' filings. Credit claimed should generally match it.

Time limit

Credit for a year must be claimed by 30 November of the following year, or the date the annual return is filed, if earlier.

Blocked credits

Credit isn't available on certain items — like most motor vehicles, food and beverages, club memberships, and construction of immovable property for own use.

180-day rule

If you don't pay a supplier within 180 days of the invoice, credit taken must be reversed, and can be reclaimed on payment.

Exempt supplies

Credit on inputs used for exempt supplies must be reversed proportionately.

Reverse charge

On supplies where you pay tax under reverse charge, you pay first, then claim credit.

Why it matters

Credit is often a business's largest GST number — and the most scrutinised:

Lost credit is lost money

Credit not claimed by the time limit can't be recovered.

Denied credit costs more

Credit claimed without meeting the conditions is recovered with 18% interest, and possibly penalties.

Supplier compliance affects you

If suppliers don't file or pay, your credit is at risk.

Automated matching

The GST system compares your credit claims with GSTR-2B and flags excess claims.

Blocked credits are common errors

Credit on cars, food, and gifts is frequently claimed by mistake.

Cash flow

Unclaimed credit means paying more tax in cash.

Due diligence

Credit issues are among the most common GST findings in due diligence.

Who is this for?

Credit for tax paid under reverse charge on imported services is often missed — both the tax and the credit need to be reported.

Credit status at a glance

How different situations are treated:

What we'll need from you

Purchase register

All purchase invoices for the period, with supplier GSTINs.

GSTR-2B

For each period, downloaded from the portal.

Payment records

To track the 180-day payment rule.

Nature of purchases

Enough detail to identify blocked items.

Exempt supplies

Details of any exempt or non-business use, for reversals.

Import and reverse charge data

Bills of entry and reverse charge supplies.

Monthly reconciliation is priced on purchase volumes and the number of GSTINs.

How we reconcile credit

Each month, before GSTR-3B is filed:

1. 1

   Download GSTR-2B

   The period's GSTR-2B is downloaded for each GSTIN.

2. 2

   Match invoices

   Purchase records are matched to GSTR-2B invoice by invoice.

3. 3

   Classify differences

   Unmatched items are classified: supplier not filed, timing, errors, or ineligible.

4. 4

   Check eligibility

   Blocked credits and exempt-use reversals are identified.

5. 5

   Finalise the claim

   The eligible, matched credit is claimed in GSTR-3B.

6. 6

   Follow up suppliers

   Suppliers with missing or wrong invoices are chased.

Protecting your credit

Ongoing habits protect credit:

Vet suppliers

Check new suppliers' GSTIN status and filing record.

Pay within 180 days

Pay suppliers within 180 days, or reverse and reclaim.

Track the deadline

Claim all credit for a year before 30 November of the next year.

Keep invoices

Keep valid tax invoices for every credit claimed.

Review blocked items

Train the team on what's blocked, like cars and food.

Annual review

Reconcile the full year before the annual return.

Benefits and responsibilities