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GST Input Tax Credit (ITC) – Explained with Examples

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May 18, 2023


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As a savvy businessperson, you know the importance of every rupee. That's why exploring all avenues to reduce your GST tax burden is crucial. One such avenue is the GST Input Tax Credit (ITC).

With ITC, you can claim credit for the tax you paid on your purchases and use it to offset the GST you owe on your sales if you're registered for the Goods and Services Tax (GST). If you're wondering what ITC is and how to fully exploit it, this blog will provide all the necessary information.

What is Input Tax Credit?

The Input Tax Credit (ITC) is a method that allows you to claim a credit for the tax paid on inputs or raw materials purchased for your firm. It means you can reduce your tax liability by claiming tax credit already paid. This helps to minimise tax cascading and decreases the total tax burden on enterprises.

Example of ITC

We will talk about two real-world applications of ITC in this section.

Example 1

Assume you are a furniture maker and spend Rs. 100,000 on raw materials. The GST rate on raw materials is 18%, which implies you must pay Rs. 18,000 in GST. When you sell finished furniture to a retailer, you must charge them the same GST rate. Assume your furniture costs Rs. 1,50,000, and you charge 18% GST, which amounts to Rs. 27,000.

If you claim ITC, you can now deduct the GST paid on raw materials (Rs. 18,000) from the GST received on completed goods sales (Rs. 27,000). This implies you have to pay the government Rs. 9,000 in GST rather than the entire sum of Rs.27,000.

Example 2

You are a service provider, and you spend money on computers, desks, and seats for your office. Consider spending Rs. 5,00,000 on office supplies charged at a 12% rate. This indicates that you have spent Rs. 60,000 on GST.

You can utilise this Rs. 60,000 in ITC claims to lower your tax obligations on service sales when you submit your GST filings. In other words, you don't have to pay GST on the taxes you already paid on the office equipment you buy; instead, you have to pay GST on the value you add to your service goods.

What are the Prerequisites to Claim ITC?

To claim the Input Tax Credit (ITC), certain conditions must be met. They are as follows:

  • Being a registered GST taxpayer
  • Using the purchases for commercial reasons
  • Having a proper tax invoice from the supplier
  • The GST imposed on the supplies has been paid by the supplier.
  • Your GST returns should include the supplies.
  • Meeting the deadline
  • Comparing the information on the supplier's tax invoice to your purchase record

What are the Documents Required to Claim ITC?

The following documents are necessary to claim Input Tax Credit (ITC):

  • A tax invoice produced by a legitimate supplier
  • Acceptance of goods or services
  • A copy of the GST registration certificate of the supplier
  • The taxable value of the supply and the amount of tax paid
  • A duplicate of the supplier's GST return
  • In the event of a price drop, the supplier's invoice or debit note.
  • In reverse charge supplies, proof of tax payment by the provider is required.
  • In the case of commodities shipping, a delivery challan

Want to read more?

Here's a detailed guide on understanding the impact of GST on import and export.


Input Tax Credit under GST allows firms to claim credit for prior taxes paid on purchases. This can help them minimise their tax obligation and improve their cash flow. Businesses must satisfy the requirements to meet avail of the benefit of ITC.

Moreover, if you want to understand the technicalities of GST, then you can get GST training from an expert. Or, to lighten the burden of your personal finance, you can consider Fi Money — a powerful personal assistant to help you manage your finances. Fi, alongside its licensed partner Federal Bank, showcases the future of secure, digital banking. It can help you save up, invest wisely & analyse your expenses. In short, Fi's an online banking solution that helps you get smarter with your money — in a fun & uncomplicated manner.

Frequently Asked Question

1. How does ITC work in GST?

Input Tax Credit, or ITC, is a feature of the GST that allows registered taxpayers to offset the GST they owe on their sales by claiming credit for the GST they paid on purchases made for company operations. This lessens the overall tax cost and assists businesses in avoiding double taxation.

2. How do you explain input tax credit?

Input Tax Credit (ITC) is a mechanism that enables firms to claim credit for the GST they paid on purchasing goods related to their business operations. It can be claimed by registered taxpayers and used to reduce the GST they are due on their sales.


Fi Money is not a bank; it offers banking services through licensed partners and investment services through epiFi Wealth Pvt. Ltd. and its partners. This post is for information only and is not professional financial advice.
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