Input tax credit is the mechanism that stops GST from cascading. It is also the single largest source of departmental notices we handle. The reason is simple: businesses treat ITC as an entitlement that arrives with the invoice, when the law treats it as a conditional benefit.

The five conditions, in order

  1. You hold a valid tax invoice or debit note issued by a registered supplier — with the correct GSTIN, place of supply and HSN.

  2. You have received the goods or services. Where delivery is in lots, credit is available only on receipt of the last lot.

  3. The supplier has actually paid the tax to the government and reported the invoice, so it appears in your GSTR-2B.

  4. You have filed the relevant return in which the credit is claimed.

  5. You pay the supplier within 180 days of the invoice date, failing which the credit is reversed with interest.

Condition three is not in your control
You can do everything right and still lose credit because your supplier did not file. This is why vendor GST compliance belongs in your procurement checklist, not only in your accounts department.

Reconcile monthly, not annually

GSTR-2B is a static, auto-drafted statement generated once a month. It is the reference point for what you may claim. Compare it against your purchase register every month and split the differences into three buckets:

Bucket

What it means

Action

In books, not in 2B

Supplier has not filed or filed late

Chase the supplier before the annual return deadline

In 2B, not in books

Invoice not recorded, or wrong GSTIN used

Book it, or ask the supplier to amend

Value or tax mismatch

Rate, taxable value or place of supply differs

Reconcile line by line and seek a debit/credit note

A three-bucket reconciliation that takes an hour a month

The 180-day rule, explained properly

If you have not paid the supplier the invoice value together with tax within 180 days of the invoice date, the credit already taken must be added back to your output liability, with interest. The good news: once you actually pay, you may reclaim the credit without the usual time limit for that reclaim.

Build it into the ageing report
Add a 180-day flag to your creditors ageing. It converts a GST risk into a routine payables review, and it pairs neatly with the MSME 45-day rule you are already tracking.

Blocked credits: know them before you book them

Section 17(5) blocks credit on specified items regardless of business use — motor vehicles below a seating threshold, food and beverages, club memberships, works contract services for immovable property, and goods lost, stolen or given as free samples, among others. Coding these correctly at the point of entry avoids a reversal, interest and a penalty conversation later.

The cheapest GST litigation is the reconciliation you did on time. — CA Sneha Iyer

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