Input tax credit (ITC) is the GST a business pays on its purchases, which it can set off against the GST it owes on its own sales, so tax is effectively paid only on the value it adds.
Example: a contractor pays ₹18,000 GST on materials and services and charges ₹30,000 GST on its bills to the client. After claiming ₹18,000 as ITC, it pays the remaining ₹12,000 in cash.
To claim ITC under Section 16 of the CGST Act, the business must hold a valid tax invoice, have received the goods or services, the supplier must have reported the invoice (so it appears in GSTR-2B) and paid the tax, and the business must file its own return. Suppliers must also be paid within 180 days of the invoice.
Section 17(5) blocks credit on some items, including works contract services and goods or services used to construct immovable property on the business’s own account (other than plant and machinery). Residential real-estate projects paying GST at the concessional 1% or 5% rates cannot claim ITC. Check eligibility with your CA.
ARC PEM computes GST on every bill and keeps the purchase register that ITC claims are based on; and matches it against GSTR-2B. See all features.
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