Monthly GSTR-3B preparation — verify net ITC before filing
Reconcile ITC with GSTR-2B auto-populated data
Calculate Rule 42/43 reversal for exempt or non-business use
Identify Sec. 17(5) blocked credit on blocked categories
Estimate cash outflow vs ITC utilisation for working capital planning
Check carry-forward ITC available for next period
Frequently Asked Questions
ITC is the mechanism under GST that allows a registered taxpayer to reduce the tax paid on purchases (inputs) from the tax payable on sales (output). This prevents cascading of taxes. For example, if you paid ₹18,000 GST on raw materials and collected ₹25,000 GST on sales, you only pay ₹7,000 in cash — the rest is offset by ITC.
To claim ITC: (1) You must be a GST-registered taxpayer, (2) you must possess a valid tax invoice or debit note, (3) the supplier must have filed their returns and the ITC must appear in your GSTR-2B, (4) the goods or services must have been received, and (5) the tax must have been paid to the government by your supplier.
Rule 42 applies to inputs and input services used for both taxable and exempt supplies. You must reverse ITC proportionate to your exempt turnover. Rule 43 applies to capital goods used for both taxable and exempt purposes. The reversal percentage = (Exempt Turnover ÷ Total Turnover) × 100.
Section 17(5) of the CGST Act lists categories where ITC is NOT available: (a) Motor vehicles for personal use, (b) Food, beverages, outdoor catering, (c) Beauty treatments, health services, cosmetic surgery, (d) Membership of clubs, health and fitness centres, (e) Travel benefits for employees, (f) Works contract services for construction of immovable property, (g) Goods or services for personal consumption. Always identify and exclude these before claiming ITC.
GSTR-2B is an auto-populated statement of ITC available based on your suppliers' filings. If a supplier hasn't filed their GSTR-1, that ITC won't appear in your GSTR-2B. As per Rule 36(4), you can only provisionally claim ITC up to the amount reflecting in GSTR-2B. The balance must be reversed and claimed only when the supplier files. This is why reconciling GSTR-2B with your purchase register is critical every month.
For intra-state purchases, ITC is split equally into CGST and SGST ledgers. For inter-state purchases, ITC goes into the IGST ledger. The utilisation order under GST law: IGST ITC can offset IGST, CGST, or SGST liability. CGST ITC can only offset CGST or IGST. SGST ITC can only offset SGST or IGST. You cannot use CGST ITC to offset SGST liability or vice versa.
