Input tax is the tax paid by you, on the purchase of goods and services for your business. This can include anything from raw materials to capital goods to items used for storage and maintenance.

Output Tax

Output tax is the tax that you charge your customers when you sell your goods or services to them .

  • The GST taxation structure allows businesses across India to claim input credit for the tax they paid while purchasing capital goods for their company.

  • Thus, at each stage of the supply cycle, the buyer gets credit for the input tax paid, and they can use it to offset the GST that needs to be paid to the Centre and State governments.


There are some rules that businesses need to adhere to before they can start claiming input tax credit under GST. These include:

  • The taxpayer must possess a valid tax invoice, debit note, or other prescribed document issued by a registered dealer.
  • The taxpayer must have received the good or service. If the product is being received in installments, then the credit can be claimed against the tax invoice for the last installment.
  • The supplier must have paid the tax due on your purchases to the government either in cash or by claiming input tax credit.
  • Finally, the supplier must have filed GST returns.

The most unique and unprecedented change GST brings to this entire tax setup is that you’re allowed to claim input tax credit on your purchases only if your supplier is GST compliant and has paid the tax he collected from you .

Time limits for claiming Input Tax Credit

  ITC can only be claimed for tax invoices and debit notes which are less than a year old. In any other case, the last date to claim ITC is the earlier of the following:

  • Before filing valid GST returns for the September following the end of the financial year applicable to that invoice, or
  • Before filing a relevant annual return.

Claiming and reconciling ITC

The three tax credits can be used to offset one another.

  • CGST credit can be used to offset CGST liability; if there is credit left over, it can be applied toward IGST liability next.
  • SGST credit can be used to offset SGST liability; if there is credit left over, it can be applied toward IGST liability next.
  • IGST credit can be used to offset IGST liability; if there is credit left over, it can be applied toward CGST liability first and then toward SGST liability.

Reconciliation of these credits is done by matching your transactions with those of your customers or vendors. This will help the Tax Department verify the transactions from both ends. The GST Identification Number (GSTIN) is used to match transactions together.


Who can claim ITC?

ITC can be claimed by a person registered under GST only if he fulfills all the  conditions  as prescribed.
  • The dealer should be in possession of tax invoice.
  • The said goods/services have been received.
  • Returns have been filed.
  • The tax charged has been paid to the government by the supplier.
  • When goods are received in installments ITC can be claimed only when the last lot is received.
  • No ITC will be allowed if depreciation has been claimed on tax component of a capital good.