← Back to Home

Who Can Claim GST Invoice: Eligibility and Process Guide

Input Tax Credit (ITC) is one of the most significant benefits of the GST system in India. It allows businesses to claim credit for the GST paid on purchases against the GST liability on sales. However, not everyone can claim ITC, and there are specific conditions and eligibility criteria that must be met. Understanding who can claim GST invoices and how to do it properly is crucial for maximizing tax benefits and ensuring compliance.

Claiming ITC can significantly reduce your tax liability, improve cash flow, and lower the overall cost of doing business. However, incorrect claims or non-compliance with the rules can lead to penalties, interest, and even cancellation of GST registration. This guide will help you understand everything about claiming GST invoices and ITC.

Who is Eligible to Claim Input Tax Credit?

Only specific categories of persons registered under GST can claim Input Tax Credit. Here's a comprehensive breakdown:

Eligible Entities

  • Regular GST Registrants: Any person registered under GST (normal taxpayers) can claim ITC on goods and services purchased for business purposes.
  • Composition Scheme Dealers: Generally cannot claim ITC, except on specific capital goods. However, they pay tax at lower rates, so they don't need ITC benefits.
  • Casual Taxable Persons: Can claim ITC if they are registered and the goods/services are used in the course of business.
  • Non-Resident Taxable Persons: Can claim ITC on purchases made during their period of registration in India.
  • Input Service Distributors (ISD): Can distribute ITC to their branches or units that have used the services.
  • SEZ Units: Can claim ITC on purchases made for authorized operations, though special rules apply.

Essential Conditions for Claiming ITC

Even if you're eligible, you must satisfy all of the following conditions to claim Input Tax Credit:

1. Valid Tax Invoice or Debit Note

You must possess a valid tax invoice, debit note, or other prescribed documents issued by the supplier. The invoice must contain all mandatory fields as per GST law, including supplier's GSTIN, invoice number, date, HSN/SAC codes, and tax details.

2. Receipt of Goods or Services

The goods or services must have been received. You cannot claim ITC merely based on an invoice—physical receipt of goods or completion of services must have occurred. For goods, this means the goods must be in your possession; for services, the service must have been provided.

3. Payment of Tax by Supplier

The supplier must have paid the tax to the government. If the supplier has not filed returns or paid taxes, your ITC claim may be reversed. The GST portal now provides automatic reconciliation through GSTR-2B.

4. Business Purpose

The goods or services must be used in the course or furtherance of business. Personal expenses, employee benefits that are not business-related, and non-business activities cannot qualify for ITC.

5. Time Limit

ITC must be claimed by the earlier of: (a) Due date of filing GSTR-3B for September of the following financial year, or (b) Date of filing annual return. Generally, this means you have until September of the next year or until you file your annual return, whichever comes first.

6. Supplier Must File Returns

The supplier must have filed their GSTR-1 (outward supplies) and paid the tax. If the supplier hasn't filed returns, your ITC may be restricted. GSTR-2B automatically shows eligible ITC based on suppliers' filings.

Who Cannot Claim Input Tax Credit?

Certain persons and specific scenarios are ineligible for ITC claims:

Ineligible Categories

  • Unregistered Persons: Cannot claim ITC as they cannot register for GST and are not part of the tax credit chain.
  • Composition Scheme Dealers: Cannot claim ITC on purchases (except on certain capital goods), as they pay tax at a fixed rate on turnover.
  • Personal Expenses: Goods or services used for personal consumption, not for business, cannot qualify for ITC.
  • Blocked Credits: ITC is specifically blocked on motor vehicles (except for certain businesses), food and beverages, club memberships, beauty treatments, and health services.
  • Exempt Supplies: If goods/services are used to make exempt supplies, ITC cannot be claimed unless it's a mixed supply scenario with proper attribution.
  • Expired Registration: ITC cannot be claimed after GST registration has been cancelled or surrendered.
  • Fraudulent Invoices: ITC on fake invoices, invoices without actual supply, or invoices obtained fraudulently cannot be claimed.

How to Claim GST on an Invoice: Step-by-Step Process

Claiming ITC involves several steps and proper documentation:

Step 1: Verify Invoice Details

Before claiming ITC, verify that the invoice contains all mandatory fields: supplier's GSTIN, invoice number, date, HSN/SAC codes, tax amounts, and your GSTIN. Ensure the invoice is valid and the supplier is registered under GST.

Step 2: Confirm Receipt of Goods/Services

Physically verify that goods have been received or services have been rendered. Maintain proper records, delivery challans, and other supporting documents.

Step 3: Check GSTR-2B

Review your GSTR-2B (auto-drafted return) on the GST portal. This form shows all invoices on which you can claim ITC based on your suppliers' GSTR-1 filings. It's available monthly and shows ITC availability for the previous month.

Step 4: File GSTR-2 (if applicable)

If required, file GSTR-2 to accept or modify details of inward supplies. Currently, GSTR-2 filing is optional, but reconciliation through GSTR-2B is recommended.

Step 5: Claim ITC in GSTR-3B

While filing GSTR-3B (monthly summary return), enter the ITC amount you wish to claim. This includes ITC from GSTR-2B and any other eligible ITC. The system will auto-populate ITC from GSTR-2B, but you can add or modify if needed.

Step 6: Utilize ITC

Use the claimed ITC to offset your GST liability on sales. If ITC exceeds liability, the balance will be carried forward to the next month or refunded (in case of exports or inverted duty structure).

Common Mistakes and How to Avoid Them

  • Claiming ITC without Valid Invoice: Always ensure you have a proper tax invoice with all mandatory fields before claiming ITC.
  • Claiming ITC on Personal Expenses: Be careful to claim ITC only on business-related purchases. Personal expenses don't qualify.
  • Missing Time Limit: Don't miss the deadline for claiming ITC. You have until September of the next year or annual return filing, whichever is earlier.
  • Not Verifying Supplier Status: Always verify that your supplier has filed returns and paid taxes. Check GSTR-2B regularly to see eligible ITC.
  • Incorrect ITC Attribution: For businesses making both taxable and exempt supplies, properly attribute ITC based on usage to avoid penalties.
  • Claiming Blocked Credits: Be aware of blocked credits like motor vehicles, food and beverages, etc., and don't claim ITC on these.

Simplify GST Invoice Management with Balncd

Managing GST invoices and tracking ITC eligibility can be complex and time-consuming. Balncd simplifies this process by helping you create compliant GST invoices and maintain proper records for ITC claims. Our app ensures all invoices contain the mandatory fields required for recipients to claim ITC, helping both you and your customers maximize tax benefits.

With Balncd, you can generate professional GST invoices with all necessary details, track transaction history, organize invoices by folders, and export data for easy reconciliation. Whether you're issuing invoices or receiving them, Balncd helps you stay compliant and maximize your ITC benefits. The app works offline, so you can access and manage invoices even without internet connectivity.

Play StoreDownload on Play Store