GST Input Tax Credit (ITC) Rules 2025: Eligibility, Limits, New Restrictions & Smart Claim Strategy (Updated for FY 2025–26)
If you run a business in India, Input Tax Credit (ITC) directly impacts your profitability. However, due to frequent GST rule changes, businesses often lose thousands or lakhs simply because of: ❌ invoice mismatch❌ supplier non-filing of returns❌ cla...
If you run a business in India, Input Tax Credit (ITC) directly impacts your profitability. However, due to frequent GST rule changes, businesses often lose thousands or lakhs simply because of:
❌ invoice mismatch
❌ supplier non-filing of returns
❌ claiming blocked credits
❌ missing documentation
❌ 180-day payment rule violations
This guide covers EVERYTHING about ITC as applicable in 2025, including recent CBIC updates.
1. What Is Input Tax Credit (ITC) Under GST?
ITC allows businesses to claim credit of GST paid on purchases used for business purposes.
Example:
You buy goods for ₹1,00,000 + 18% GST = ₹18,000.
Your output GST is ₹25,000.
→ You can reduce ₹18,000 and pay only ₹7,000.
2. Conditions to Claim ITC (Updated 2025)
You can claim ITC only if ALL the following conditions are fulfilled:
✓ You have a valid tax invoice / debit note
Must include GSTIN, invoice number, date, SAC/HSN, amount, and tax.
✓ Supplier has uploaded invoice in GSTR-1
Only invoices that appear in GSTR-2B (auto-drafted ITC statement) are eligible.
✓ Goods or services are received
Proof may include E-way bill, GR, or delivery challan.
✓ Tax paid by supplier to the government
If supplier defaults, ITC may be reversed (2024-25 amendment strictness continues in 2025).
✓ You have filed GSTR-3B for the month
3. New ITC Rules Applicable in 2025
Due to multiple amendments up to FY 2024–25, the following are important 2025 rules:
✔ ITC Can Be Claimed Only as Per GSTR-2B (NOT GSTR-2A)
GSTR-2B is a static statement → once generated, no changes for that period.
✔ No Provisional ITC Allowed
The earlier 5%/10% provisional ITC rule is fully removed.
✔ Supplier Non-Compliance = ITC Reversal
If supplier fails to file GSTR-1 or pay tax → your ITC is at risk.
✔ ITC on RCM can be claimed only after payment of tax
✔ ITC Blocked for Non-Payment to Vendor Within 180 Days
If not paid within 180 days → ITC is reversed with interest.
Once payment is made → ITC can be reclaimed.
4. Items on Which ITC Is NOT Allowed (Blocked Credits — Section 17(5))
These remain blocked in FY 2025–26 unless used for specific business purposes:
Motor vehicles (except for training, transport, supply)
Food, beverages, employee canteen expenses
Medical insurance (unless mandatory by law)
Works contract for construction
Goods lost, stolen, destroyed, written off
⚠️ Many companies lose ITC by accidentally claiming these.
5. Documents Required to Claim ITC
Tax invoice / debit note
Proof of receipt
GSTR-2B reconciliation
Payment proof to supplier
E-way bill (if applicable)
Keep records for 6 years as per law.
6. ITC Reconciliation Process (2025 Method)
The correct process is:
Step 1 — Download GSTR-2B for the month
This determines eligible ITC.
Step 2 — Match with your purchase register
Check invoice number, GSTIN, date, and tax.
Step 3 — Identify mismatches
Common mismatches include
supplier filed wrong GSTIN
invoice not uploaded
different taxable value
Step 4 — Communicate with vendors
Get them to correct invoices or upload missing ones.
Step 5 — Claim only eligible & matched invoices
7. Top Reasons Why ITC Gets Rejected in 2025
❌ Supplier didn’t file GSTR-1
❌ Invoice not appearing in GSTR-2B
❌ Wrong GSTIN on invoice
❌ Claiming ITC on blocked items
❌ Missing E-way bills
❌ Not paying vendor in 180 days
❌ Duplicate invoice entries
8. ITC on Reverse Charge Mechanism (RCM)
RCM applies on:
legal services
GTA
import of services
security services
renting of residential property (commercial use)
You can claim ITC on RCM only after paying the tax in cash, not using ITC.
9. Special ITC Rules for FY 2025–26
✔ ITC Restriction for Non-Compliant Vendors
Businesses with less than 70% compliance suppliers face higher risk of ITC disallowance.
✔ E-Invoice Mandatory for Turnover Above ₹5 Cr
If suppliers fail to issue e-invoices → ITC becomes risky.
✔ ITC on CSR Expenditure Is Not Allowed
10. Practical Tips to Maximise Your ITC Legally
1. Always purchase from compliant vendors
Check filing status on GST portal.
2. Reconcile GSTR-2B monthly
Avoid surprises at year-end.
3. Automate vendor reminders
Use email/SMS templates.
4. Ask vendors for e-invoice compliance
Reduces mismatch risk drastically.
5. Avoid purchasing items on blocked list unless specifically allowed.
11. Benefits of Claiming ITC Properly
✔ Reduced GST payment
✔ Higher working capital
✔ Better cash flow management
✔ Improved profitability
✔ Lower risk of audits
✔ Greater vendor discipline
12. When Should You Avoid Claiming ITC?
Avoid claiming when:
Invoice appears suspicious
Vendor is non-compliant
Goods are not received
Invoice does not appear in GSTR-2B
Credit belongs to blocked category
13. FAQ Section (Schema-Ready)
Q1. Can I claim ITC based on GSTR-2A?
No. Only GSTR-2B is valid from 2022 onwards.
Q2. Can I claim ITC on capital goods?
Yes, unless it falls under blocked credits.
Q3. Can ITC be claimed on advance payments?
No. Claim only after receiving goods/services and invoice appears in 2B.
Q4. Is ITC allowed on fuel?
No, unless used for vehicles eligible for ITC.
Internal Links for WonderTax
GST Registration: https://wondertax.in/services/gst-registration
GST Return Filing: https://wondertax.in/services/gst-return-filing
Business Registration: https://wondertax.in/services/start-business
Final CTA
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👉 Get WonderTax GST Compliance Experts Today!
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