Input tax credit under GST: the conditions, and the credits that are blocked

A purchase bill with GST on it is not automatically a credit. The conditions that must all be met, the purchases on which credit is never allowed, and a monthly check that stops credit being lost.

Input tax credit is the tax you paid on purchases, set off against the tax you collected on sales. It is what makes GST a tax on the value you add rather than on your whole turnover. It is also conditional — and a credit taken without its conditions comes back later with interest.

The conditions — all of them, together

You hold a tax invoice or debit note in your name, with your GSTIN on it.
You have actually received the goods or the service.
The supplier has reported the invoice in his own return, so that it appears in your GSTR-2B.
The purchase is for your business — not for personal use.
You have filed your own return.
You pay the supplier within 180 days of the invoice. If not, the credit is reversed with interest, and can be taken again once you pay.

The deadline

Credit on an invoice must be claimed by 30 November following the end of the financial year the invoice belongs to, or by the date of the annual return, whichever comes first. A bill found in a drawer after that is a cost.

Credits that are blocked, however genuine the bill

Cars and other passenger vehicles (and their insurance and repairs), unless your business is selling, hiring or teaching on them.
Food, outdoor catering, beauty treatment and health services.
Club and gym memberships.
Travel benefits given to employees for holidays.
Construction of a building for your own use.
Goods used for personal purposes.
Goods lost, stolen, destroyed, written off, or given as gifts or free samples.
Purchases on which the supplier paid tax under the composition scheme — there is no tax on the bill to claim.

Purchases a textile trader should not miss

Mill processing and job work bills. They are a service received for the business, and the tax on them is credit.
Transport and freight on which you paid tax under reverse charge.
Packing material, stationery, repairs, professional fees, bank charges.
Capital goods — a loom, a folding machine, a computer — in the month of purchase, provided depreciation is not claimed on the tax part.

The monthly check

Put your purchase register beside GSTR-2B and sort both by supplier.

In your books but not in 2B — the supplier has not filed, or used a wrong GSTIN. Ask him now, not in March.
In 2B but not in your books — a bill you have not entered, or a bill that is not yours. Either way, find out.
In both, but for different amounts — a credit note, a rate difference, or a typing mistake.

The safe rule Take credit on what is in 2B and in your books; follow up on the rest. A credit taken on a bill the supplier never reported is the commonest reason for a notice.

The list of blocked credits and the conditions above are amended from time to time. Confirm the current position with your tax adviser before taking a large or unusual credit.