GST · 25 June 2026
What Is Input Tax Credit (ITC) Under GST?
Input tax credit (ITC) is the GST you paid on business purchases, set off against the GST you collect on sales, so you pay tax only on the value you added. Section 16 of the CGST Act sets the conditions to claim it, the most important being a valid tax invoice. Section 17(5) lists purchases on which ITC is blocked even with a valid invoice. ITC is the single reason a pakka bill is worth more than a kaccha bill: only a tax invoice carries credit the buyer can recover.
By Mrs. Swapna Patel
Last reviewed
25 June 2026
In this section
Answers
- What Is Input Tax Credit (ITC) Under GST?
- What Is a Pakka Bill? The GST Invoice That Counts as Valid
- What Is a Kaccha Bill? Why the Rough Slip Has No GST Standing
- Why Move From a Kaccha Bill to a Pakka Bill?
- How to Upgrade From a Kaccha Bill to a Pakka Bill (GST Invoice)
- 5 GST Invoice Mistakes That Trigger a Tax Notice (And How to Fix Them)
- 7 Fields Every Skilled Professional Must Put on a GST Invoice: Rule 46 Checklist
- What Makes a GST Invoice Legally Binding — And Why Clients Pay Faster When It Is
- What Is a Bill of Supply? The GST Document Without Tax
- What Is an IRN (Invoice Reference Number) Under GST?
The GST you pay on business purchases is just another cost you absorb.
Under Section 16 of the CGST Act, the GST on a business purchase is recoverable as input tax credit, but only if you hold a valid tax invoice (a pakka bill), not a kaccha slip.
What is input tax credit?
Short answer
Input tax credit is the GST you paid on purchases, set off against the GST you charge on sales. Under Section 16 of the CGST Act, it means you pay tax only on the value you add, not on the full sale price.
GST is charged at every stage of a supply chain. Without ITC, the same value would be taxed again and again as goods move along. ITC removes that by letting a business reclaim the tax it already paid on its inputs, so the net tax sticks only to the margin it added.
What are the conditions to claim ITC?
Short answer
Section 16 sets five core conditions. The first is a valid tax invoice, which is why a pakka bill matters.
- You hold a valid tax invoice or debit note for the purchase. A kaccha bill or rough slip does not qualify.
- The goods or services were actually received.
- The supplier has paid the tax to the government and reported the invoice, so it appears in your auto-drafted statement.
- You have filed the relevant GST return for the period.
When can ITC not be claimed?
Short answer
Even with a valid invoice, Section 17(5) of the CGST Act blocks credit on a fixed list of purchases.
- Motor vehicles for personal use, with limited business exceptions.
- Food and beverages, outdoor catering, and club or health memberships.
- Goods or services used for personal consumption, not for the business.
- Tax paid under the composition scheme, which is why a composition dealer's bill of supply carries no ITC.
Why does ITC make a pakka bill worth more?
Short answer
Because the credit travels only on a valid tax invoice. A pakka bill carries recoverable tax; a kaccha bill does not.
- When a buyer holds a pakka bill, the GST in the price comes back as ITC. The real cost is the price minus the tax.
- When a buyer holds a kaccha bill, that same GST is a sunk cost, because there is no valid invoice to claim against.
- A seller who issues pakka bills gives the buyer a reason to choose them: the purchase effectively costs less.
References & related
Primary sources
- Section 16, Central Goods and Services Tax Act 2017 — CBICEligibility and conditions for claiming input tax credit.
- Section 17(5), Central Goods and Services Tax Act 2017 — CBICBlocked credits, the purchases on which ITC cannot be claimed.
- Rule 36, Central Goods and Services Tax Rules 2017 — CBICDocumentary requirements for claiming input tax credit.
Last reviewed: 25 June 2026