Input Tax Credit (ITC) is one of the key benefits under the GST regime, enabling businesses to reduce their tax liability and improve cash flow. While the process for claiming ITC remains unchanged, the recent Supreme Court ruling upholding the constitutional validity of Section 16(2)(c) of the CGST Act has reinforced the importance of complying with all the statutory conditions for availing ITC. Specifically, it reiterates that ITC is available only when the tax charged on a supply has been paid to the Government by the supplier.
As a result, businesses should not only maintain accurate documentation but also strengthen invoice reconciliation and supplier compliance monitoring as part of their ITC claim process.
What did the Supreme Court rule?
The Supreme Court recently upheld the constitutional validity of Section 16(2)(c), reaffirming that ITC is a statutory benefit and can be availed only when all the prescribed conditions under Section 16 are fulfilled. The Court clarified that if the supplier fails to discharge the GST liability, the recipient's ITC may be denied even if the transaction is genuine and the other conditions have been met.
The ruling does not introduce a new condition for claiming ITC. Instead, it reinforces the importance of an existing statutory requirement and highlights the need for businesses to adopt stronger reconciliation and supplier compliance practices.
Step-by-step process to claim ITC after the ruling
Step 1: Verify your eligibility
Before claiming ITC, ensure that:
- The purchase is used in the course or furtherance of business.
- The expense is not covered under blocked credits.
- You are registered under GST.
Step 2: Verify the tax invoice
Check that the invoice contains all the prescribed particulars, including:
- Supplier GSTIN
- Recipient GSTIN
- Invoice number and date
- Taxable value
- GST amount
- HSN/SAC details, wherever applicable
Step 3: Confirm receipt of goods or services
ITC can be claimed only after the goods or services have actually been received. Retain supporting documents such as delivery challans, goods receipt notes, transport documents, or work completion certificates, as applicable.
Step 4: Verify invoice reporting and reconcile with GSTR-2B
Ensure that the supplier has uploaded the invoice in GSTR-1 and that it is reflected in your GSTR-2B/IMS. Reconcile your purchase register with GSTR-2B to identify:
- Missing invoices
- Mismatched invoice values
- Incorrect GST amounts
- Incorrect GSTINs
- Duplicate entries
Regular reconciliation helps identify discrepancies early and allows sufficient time for corrective action.
Step 5: Monitor supplier compliance
Invoice reflection alone does not guarantee ITC eligibility. Businesses should also monitor supplier compliance by following up on pending invoices, resolving discrepancies promptly, and ensuring suppliers have filed GSTR-3B to discharge the applicable GST liability. This helps minimise the risk of ITC denial under Section 16(2)(c).
Step 6: File GST returns and claim ITC
Once all the statutory conditions have been fulfilled:
- File the applicable GST return within the prescribed due date.
- Claim eligible ITC.
- Ensure that ITC is claimed within the statutory time limit.
Common reasons why ITC claims are rejected
Your ITC claim may be denied if:
- You do not possess a valid tax invoice.
- The goods or services have not been received.
- The purchase is ineligible or falls under blocked credits.
- The invoice is not reported correctly or does not reflect in GSTR-2B.
- The supplier has not discharged the applicable GST liability.
- ITC is claimed after the prescribed time limit.
- Purchase records are not reconciled with GST records.
What to do if your ITC is denied
If your ITC claim is denied:
- Identify the reason for denial.
- Review invoices and reconciliation reports.
- Contact the supplier to rectify discrepancies or complete pending GST compliance.
- Maintain records of all communications and corrective actions.
- Re-avail the ITC, where permissible under the GST law, once the applicable conditions are fulfilled.
How TallyPrime Simplifies ITC Claims
Claiming ITC requires timely reconciliation, supplier compliance monitoring, and accurate documentation. TallyPrime helps simplify these activities through built-in GST compliance features.
Check supplier compliance
View the GST return filing status of your suppliers to identify potential compliance risks and proactively follow up on pending GST obligations before claiming ITC.
Verify GSTIN and create supplier ledgers
Verify supplier GSTINs and automatically create supplier ledgers using verified information, reducing manual effort and ensuring accurate master data.
Automate GSTR-2B reconciliation
Automatically download GSTR-2B and other GST returns, reconcile them with your purchase register, and quickly identify matched, mismatched, and missing invoices. This enables businesses to identify discrepancies early and take corrective action before filing returns.
Gain actionable ITC risk insights
ITC risk insights in the Bills Payable report provide visibility into invoices that may impact ITC eligibility based on their reconciliation status. This helps businesses prioritise supplier follow-ups and make informed payment decisions.
