Input tax credit: when you get it and when you lose it

When you can claim input tax credit on a purchase, what makes you lose it, which purchases are blocked, and how to keep your claim clean month after month.

You can claim input tax credit on a purchase when four things are true: you hold a valid tax invoice, you have received the goods or services, your supplier has reported the invoice so that it shows in your GSTR-2B, and the purchase is for business use and not one the law blocks. You can lose the credit, or have to reverse it, if the supplier does not report, if you do not pay for the supply in time, if the use changes, or if you claim too late.

Last reviewed: October 2026. The conditions for credit, the time limit for claiming it, the payment window, the list of blocked credits and the interest on wrong claims are set by GST law and portal advisories, and they change. Confirm the current position for your business on the GST portal or with your CA.

What is input tax credit, and why does it matter to a small business?

Input tax credit is the GST you paid on what you bought for your business, set off against the GST you collect on what you sell. You pay only the difference. Without it, tax would pile up on tax at every step, and your prices would carry it.

For a small business, credit is real money. A bill you could not claim, or a credit you claimed and later had to reverse, comes straight out of your cash. Most disputes about credit are not about big mistakes. They are about a missing bill, an unpaid supplier or a purchase that was never eligible.

So the question is not only how to claim. It is how to claim in a way you can defend.

When can you claim input tax credit on a purchase?

You can generally claim credit when all the basic conditions are met. Each is a separate test, and a purchase must pass every one.

You hold a tax invoice or debit note that shows the particulars the law requires. See what a GST invoice must contain.
You have received the goods or services. Where goods arrive in lots, the condition is generally met when the last lot arrives.
The supplier has reported the invoice, so that it reaches your GSTR-2B.
The tax has actually been paid to the government, by the supplier, in cash or through credit.
You have filed your return, because that is where the credit is claimed.
The claim is within the time the law allows.

If any one fails, hold the credit. Do not claim first and fix later.

Why does your supplier's filing decide your credit?

Because the system matches your claim to what your supplier reported. The credit you can claim on an invoice depends on that invoice having been furnished by the supplier and communicated to you in GSTR-2B.

This is not in your control, which is why reconciliation matters. Match your purchase register to the statement every period, chase the suppliers whose bills are missing, and keep those bills on a pending list. How to reconcile GSTR-2B with your purchase register gives the method.

It also helps to buy from suppliers who file on time. A supplier who reports late costs you a month of credit, and a supplier who never reports can cost you the credit altogether.

How long do you have to pay your supplier?

GST law expects you to pay a supplier for the value of the supply, along with the tax, within a period set by the law. If you do not, the credit you took on that bill may have to be reversed, with interest. When you do pay, the credit can generally be claimed again.

The practical lesson is to track unpaid supplier bills by age, not only by amount. A bill that has sat in your books for months without payment is a bill that may need a reversal.

The length of the period and the way interest is worked out are set by law and can be revised. Ask your CA for the current position, and put the check in your monthly routine.

Which purchases give you no credit?

Some credit is blocked, and some is limited, whatever the invoice says. The law lists these cases. They typically concern items used for personal consumption, certain categories of goods and services that the law restricts, and goods that are lost, stolen or given away free.

Credit is also not available on purchases used for exempt sales. Where a purchase is used for both taxable and exempt sales, the credit must be split by the method the rules set out.

Do not rely on the portal to flag these. GSTR-2B shows what suppliers reported, not what you are entitled to. Read the current list of blocked credits on the official GST site or with your CA, and mark such purchases in your register when you enter the bill.

What if the way you use a purchase changes?

Credit is tied to the use you intended when you bought. If you later use the item for something that does not give credit, the credit may have to be reversed. This can apply to items that are lost, destroyed or written off, and to goods that move from taxable to exempt use.

For a trader, the common case is stock. Stock that is written off, found missing at a stock count, or given away as samples is the kind of loss on which credit may need to be reversed. The treatment depends on the cause of the loss, so take it up with your CA before you book the adjustment.

This is one more reason to keep stock records that explain every adjustment: a reason, a date and a person.

How do you claim, reverse and prove input tax credit every month?

Work in the same order each month, and keep the sheet.

Reconcile your purchase register to GSTR-2B and list the differences.
Separate bills into claim now, hold, and not eligible.
Reverse credit that is blocked, unpaid beyond the allowed period, or no longer eligible.
Claim the rest in GSTR-3B, in the tables the portal provides. The monthly GSTR-3B checklist shows where this fits.
Keep the register, the GSTR-2B you used and the reversal note together for the period.

A claim you can explain line by line is a claim you can defend if a notice arrives. A claim you cannot explain is one you may end up paying back.

FAQ

What is input tax credit? Input tax credit is the GST you paid on purchases for your business, which you can set off against the GST you collect on sales. You pay the difference to the government. It exists so that tax is charged on the value you add, not on the full price at every step of the chain.

What are the conditions to claim input tax credit? In general you need a valid tax invoice or debit note, the goods or services must be received, the supplier must have reported the invoice so that it reaches your GSTR-2B, the tax must have been paid to the government, and you must file your return. The claim must also be made within the time the law allows. Confirm the current conditions with your CA.

Can I claim input tax credit if my supplier has not filed? Generally not until the supplier reports the invoice and it appears in your GSTR-2B. Keep the bill on a pending list and follow up with the supplier. Claiming it earlier than the law allows can lead to reversal with interest, so wait for the statement or confirm with your CA.

What happens if I do not pay my supplier on time? GST law sets a period within which you must pay a supplier for the value of the supply and the tax. If you do not, you may have to reverse the credit you took, and you may claim it back when you pay. Check the period and the interest rules with your CA, and track unpaid bills by age.

If you would rather your purchase register was built from goods receipts and supplier bills as they arrive, see how KillStock handles purchasing and what it costs.