Input Tax Credit (2026): Blocked Credits Under Section 17(5), Rule 42/43 Reversal & the Deadlines That Cost You Money

Keep your credit clean at the source

Most ITC disputes trace back to messy invoices — wrong GSTIN, missing HSN, a rate that doesn’t match. GST Bill Maker produces clean, correctly-taxed invoices and a GSTR-1-ready summary, so what your buyers see matches what lands in their GSTR-2B — fewer mismatches, fewer reversals. Browse the Knowledge Center for more GST guides.

Q: Did the GST 2.0 rate cuts force me to reverse any ITC? A: No. A rate reduction does not trigger reversal — only a supply becoming exempt does. See our GST 2.0 guide for the transition rules.

Q: What’s the last date to claim last year’s ITC? A: 30 November after the financial year ends, or the date you file the annual return, whichever is earlier.

Keep your credit clean at the source

Q: Is ITC on a car for my business allowed? A: Generally no for vehicles with 13 seats or fewer, unless you supply vehicles, transport passengers, or run a driving school.

Q: What’s the last date to claim last year’s ITC? A: 30 November after the financial year ends, or the date you file the annual return, whichever is earlier.

Keep your credit clean at the source

Q: I reversed ITC because I hadn’t paid my supplier within 180 days. Can I get it back? A: Yes. Once you pay, re-avail the credit. Rule 37(4) makes clear the Section 16(4) time limit does not apply to this re-availment.

Q: Is ITC on a car for my business allowed? A: Generally no for vehicles with 13 seats or fewer, unless you supply vehicles, transport passengers, or run a driving school.

Q: What’s the last date to claim last year’s ITC? A: 30 November after the financial year ends, or the date you file the annual return, whichever is earlier.

Keep your credit clean at the source

Q: Can I claim ITC on a purchase invoice that isn’t in my GSTR-2B yet? A: No. Since Section 16(2)(aa), credit is allowed only when the invoice appears in your GSTR-2B. Ask the supplier to file or amend their GSTR-1, then claim in the month it reflects.

Q: Is ITC on a car for my business allowed? A: Generally no for vehicles with 13 seats or fewer, unless you supply vehicles, transport passengers, or run a driving school.

Q: What’s the last date to claim last year’s ITC? A: 30 November after the financial year ends, or the date you file the annual return, whichever is earlier.

Keep your credit clean at the source

Frequently asked questions

Q: Is ITC on a car for my business allowed? A: Generally no for vehicles with 13 seats or fewer, unless you supply vehicles, transport passengers, or run a driving school.

Q: What’s the last date to claim last year’s ITC? A: 30 November after the financial year ends, or the date you file the annual return, whichever is earlier.

Keep your credit clean at the source

Frequently asked questions

Q: Is ITC on a car for my business allowed? A: Generally no for vehicles with 13 seats or fewer, unless you supply vehicles, transport passengers, or run a driving school.

Q: What’s the last date to claim last year’s ITC? A: 30 November after the financial year ends, or the date you file the annual return, whichever is earlier.

Keep your credit clean at the source

Since Section 16(2)(aa), you can claim a credit only if the invoice appears in your GSTR-2B — the auto-drafted statement built from your suppliers’ filings. The Invoice Management System (IMS) now sits in front of GSTR-2B: you accept, reject, or keep each inward invoice pending, and only accepted invoices flow into your GSTR-2B. Ignoring IMS, or rejecting an invoice by mistake, quietly costs you credit. Reconcile your purchase register to GSTR-2B every month, and chase suppliers who haven’t filed — their delay is your blocked credit.

Common mistakes to avoid

Claiming ITC that isn’t in GSTR-2B — the single most common cause of demand + 18% interest.
Missing the 180-day reversal on unpaid supplier bills, then getting caught at audit.
Claiming blocked Section 17(5) items — client entertainment, staff insurance, office fit-outs, festive gifts.
Forgetting proportionate reversal when you have exempt income like interest or exempt goods.
Claiming full ITC on capital goods used partly for exempt supplies instead of the Rule 43 60-month split.
Missing the 30 November deadline for the previous year’s credit.

Frequently asked questions

Q: Is ITC on a car for my business allowed? A: Generally no for vehicles with 13 seats or fewer, unless you supply vehicles, transport passengers, or run a driving school.

Q: What’s the last date to claim last year’s ITC? A: 30 November after the financial year ends, or the date you file the annual return, whichever is earlier.

Keep your credit clean at the source

Match everything to GSTR-2B and IMS

Common mistakes to avoid

Claiming ITC that isn’t in GSTR-2B — the single most common cause of demand + 18% interest.
Missing the 180-day reversal on unpaid supplier bills, then getting caught at audit.
Claiming blocked Section 17(5) items — client entertainment, staff insurance, office fit-outs, festive gifts.
Forgetting proportionate reversal when you have exempt income like interest or exempt goods.
Claiming full ITC on capital goods used partly for exempt supplies instead of the Rule 43 60-month split.
Missing the 30 November deadline for the previous year’s credit.

Frequently asked questions

Q: Is ITC on a car for my business allowed? A: Generally no for vehicles with 13 seats or fewer, unless you supply vehicles, transport passengers, or run a driving school.

Q: What’s the last date to claim last year’s ITC? A: 30 November after the financial year ends, or the date you file the annual return, whichever is earlier.

Keep your credit clean at the source

ITC for a financial year must be claimed by the earlier of: 30 November of the following financial year, or the date you file that year’s annual return (GSTR-9). Miss it and the credit lapses permanently — there is no condonation. This is why reconciling purchases before the November GSTR-3B is a hard deadline, not a nicety.

Match everything to GSTR-2B and IMS

Common mistakes to avoid

Claiming ITC that isn’t in GSTR-2B — the single most common cause of demand + 18% interest.
Missing the 180-day reversal on unpaid supplier bills, then getting caught at audit.
Claiming blocked Section 17(5) items — client entertainment, staff insurance, office fit-outs, festive gifts.
Forgetting proportionate reversal when you have exempt income like interest or exempt goods.
Claiming full ITC on capital goods used partly for exempt supplies instead of the Rule 43 60-month split.
Missing the 30 November deadline for the previous year’s credit.

Frequently asked questions

Q: Is ITC on a car for my business allowed? A: Generally no for vehicles with 13 seats or fewer, unless you supply vehicles, transport passengers, or run a driving school.

Q: What’s the last date to claim last year’s ITC? A: 30 November after the financial year ends, or the date you file the annual return, whichever is earlier.

Keep your credit clean at the source

The claim deadline (Section 16(4))

Match everything to GSTR-2B and IMS

Common mistakes to avoid

Claiming ITC that isn’t in GSTR-2B — the single most common cause of demand + 18% interest.
Missing the 180-day reversal on unpaid supplier bills, then getting caught at audit.
Claiming blocked Section 17(5) items — client entertainment, staff insurance, office fit-outs, festive gifts.
Forgetting proportionate reversal when you have exempt income like interest or exempt goods.
Claiming full ITC on capital goods used partly for exempt supplies instead of the Rule 43 60-month split.
Missing the 30 November deadline for the previous year’s credit.

Frequently asked questions

Q: Is ITC on a car for my business allowed? A: Generally no for vehicles with 13 seats or fewer, unless you supply vehicles, transport passengers, or run a driving school.

Q: What’s the last date to claim last year’s ITC? A: 30 November after the financial year ends, or the date you file the annual return, whichever is earlier.

Keep your credit clean at the source

Rule 43 (capital goods): credit on capital goods used for both taxable and exempt supplies is spread over 60 months (a 5-year useful life). Each month you reverse the exempt-turnover proportion of one-sixtieth of the credit. Note that many businesses forget interest income and other “exempt” receipts count as exempt turnover here.

The claim deadline (Section 16(4))

Match everything to GSTR-2B and IMS

Common mistakes to avoid

Claiming ITC that isn’t in GSTR-2B — the single most common cause of demand + 18% interest.
Missing the 180-day reversal on unpaid supplier bills, then getting caught at audit.
Claiming blocked Section 17(5) items — client entertainment, staff insurance, office fit-outs, festive gifts.
Forgetting proportionate reversal when you have exempt income like interest or exempt goods.
Claiming full ITC on capital goods used partly for exempt supplies instead of the Rule 43 60-month split.
Missing the 30 November deadline for the previous year’s credit.

Frequently asked questions

Q: Is ITC on a car for my business allowed? A: Generally no for vehicles with 13 seats or fewer, unless you supply vehicles, transport passengers, or run a driving school.

Q: What’s the last date to claim last year’s ITC? A: 30 November after the financial year ends, or the date you file the annual return, whichever is earlier.

Keep your credit clean at the source

The claim deadline (Section 16(4))

Match everything to GSTR-2B and IMS

Common mistakes to avoid

Claiming ITC that isn’t in GSTR-2B — the single most common cause of demand + 18% interest.
Missing the 180-day reversal on unpaid supplier bills, then getting caught at audit.
Claiming blocked Section 17(5) items — client entertainment, staff insurance, office fit-outs, festive gifts.
Forgetting proportionate reversal when you have exempt income like interest or exempt goods.
Claiming full ITC on capital goods used partly for exempt supplies instead of the Rule 43 60-month split.
Missing the 30 November deadline for the previous year’s credit.

Frequently asked questions

Q: Is ITC on a car for my business allowed? A: Generally no for vehicles with 13 seats or fewer, unless you supply vehicles, transport passengers, or run a driving school.

Q: What’s the last date to claim last year’s ITC? A: 30 November after the financial year ends, or the date you file the annual return, whichever is earlier.

Keep your credit clean at the source

If your business makes both taxable and exempt supplies — or uses inputs partly for non-business purposes — you can keep credit only on the taxable portion. The rest is reversed.

Rule 42 (inputs & input services): take your common credit and apportion it by the ratio of exempt turnover to total turnover, each month, then finalise the year’s figure by 30 November of the next year.

Common ITC for the month: ₹1,00,000
Total turnover: ₹50,00,000, of which exempt (e.g. interest income, exempt goods): ₹10,00,000
Exempt ratio = 20% → reverse ₹20,000, keep ₹80,000.

The claim deadline (Section 16(4))

Match everything to GSTR-2B and IMS

Common mistakes to avoid

Claiming ITC that isn’t in GSTR-2B — the single most common cause of demand + 18% interest.
Missing the 180-day reversal on unpaid supplier bills, then getting caught at audit.
Claiming blocked Section 17(5) items — client entertainment, staff insurance, office fit-outs, festive gifts.
Forgetting proportionate reversal when you have exempt income like interest or exempt goods.
Claiming full ITC on capital goods used partly for exempt supplies instead of the Rule 43 60-month split.
Missing the 30 November deadline for the previous year’s credit.

Frequently asked questions

Q: Is ITC on a car for my business allowed? A: Generally no for vehicles with 13 seats or fewer, unless you supply vehicles, transport passengers, or run a driving school.

Q: What’s the last date to claim last year’s ITC? A: 30 November after the financial year ends, or the date you file the annual return, whichever is earlier.

Keep your credit clean at the source

Proportionate reversal when you have exempt income (Rules 42 & 43)

If your business makes both taxable and exempt supplies — or uses inputs partly for non-business purposes — you can keep credit only on the taxable portion. The rest is reversed.

Common ITC for the month: ₹1,00,000
Total turnover: ₹50,00,000, of which exempt (e.g. interest income, exempt goods): ₹10,00,000
Exempt ratio = 20% → reverse ₹20,000, keep ₹80,000.

The claim deadline (Section 16(4))

Match everything to GSTR-2B and IMS

Common mistakes to avoid

Claiming ITC that isn’t in GSTR-2B — the single most common cause of demand + 18% interest.
Missing the 180-day reversal on unpaid supplier bills, then getting caught at audit.
Claiming blocked Section 17(5) items — client entertainment, staff insurance, office fit-outs, festive gifts.
Forgetting proportionate reversal when you have exempt income like interest or exempt goods.
Claiming full ITC on capital goods used partly for exempt supplies instead of the Rule 43 60-month split.
Missing the 30 November deadline for the previous year’s credit.

Frequently asked questions

Q: Is ITC on a car for my business allowed? A: Generally no for vehicles with 13 seats or fewer, unless you supply vehicles, transport passengers, or run a driving school.

Q: What’s the last date to claim last year’s ITC? A: 30 November after the financial year ends, or the date you file the annual return, whichever is earlier.

Keep your credit clean at the source

If you claim ITC on a purchase but haven’t paid the supplier the full invoice value within 180 days of the invoice date, you must reverse that credit and add interest under Section 50. The good news: the reversal isn’t permanent. Once you pay the supplier, you can re-avail the credit — and Rule 37(4) confirms the Section 16(4) deadline does not apply to this re-availment. So a genuinely delayed payment costs you interest, not the credit itself.

Proportionate reversal when you have exempt income (Rules 42 & 43)

If your business makes both taxable and exempt supplies — or uses inputs partly for non-business purposes — you can keep credit only on the taxable portion. The rest is reversed.

Common ITC for the month: ₹1,00,000
Total turnover: ₹50,00,000, of which exempt (e.g. interest income, exempt goods): ₹10,00,000
Exempt ratio = 20% → reverse ₹20,000, keep ₹80,000.

The claim deadline (Section 16(4))

Match everything to GSTR-2B and IMS

Common mistakes to avoid

Claiming ITC that isn’t in GSTR-2B — the single most common cause of demand + 18% interest.
Missing the 180-day reversal on unpaid supplier bills, then getting caught at audit.
Claiming blocked Section 17(5) items — client entertainment, staff insurance, office fit-outs, festive gifts.
Forgetting proportionate reversal when you have exempt income like interest or exempt goods.
Claiming full ITC on capital goods used partly for exempt supplies instead of the Rule 43 60-month split.
Missing the 30 November deadline for the previous year’s credit.

Frequently asked questions

Q: Is ITC on a car for my business allowed? A: Generally no for vehicles with 13 seats or fewer, unless you supply vehicles, transport passengers, or run a driving school.

Q: What’s the last date to claim last year’s ITC? A: 30 November after the financial year ends, or the date you file the annual return, whichever is earlier.

Keep your credit clean at the source

The 180-day payment rule (Rule 37)

Proportionate reversal when you have exempt income (Rules 42 & 43)

If your business makes both taxable and exempt supplies — or uses inputs partly for non-business purposes — you can keep credit only on the taxable portion. The rest is reversed.

Common ITC for the month: ₹1,00,000
Total turnover: ₹50,00,000, of which exempt (e.g. interest income, exempt goods): ₹10,00,000
Exempt ratio = 20% → reverse ₹20,000, keep ₹80,000.

The claim deadline (Section 16(4))

Match everything to GSTR-2B and IMS

Common mistakes to avoid

Claiming ITC that isn’t in GSTR-2B — the single most common cause of demand + 18% interest.
Missing the 180-day reversal on unpaid supplier bills, then getting caught at audit.
Claiming blocked Section 17(5) items — client entertainment, staff insurance, office fit-outs, festive gifts.
Forgetting proportionate reversal when you have exempt income like interest or exempt goods.
Claiming full ITC on capital goods used partly for exempt supplies instead of the Rule 43 60-month split.
Missing the 30 November deadline for the previous year’s credit.

Frequently asked questions

Q: Is ITC on a car for my business allowed? A: Generally no for vehicles with 13 seats or fewer, unless you supply vehicles, transport passengers, or run a driving school.

Q: What’s the last date to claim last year’s ITC? A: 30 November after the financial year ends, or the date you file the annual return, whichever is earlier.

Keep your credit clean at the source

Expense	Status	Key exception
Motor vehicles (≤13 seats) for personal/staff transport	Blocked	Allowed if you resell vehicles, run passenger transport, or driving training
Food & beverages, outdoor catering, health & beauty services	Blocked	Allowed if it’s your own line of business, or the law obliges you to provide it
Club, health & fitness centre membership	Blocked	—
Life & health insurance, rent-a-cab for staff	Blocked	Allowed where statutorily obligatory, or same line of business
Works contract & goods/services for construction of immovable property (own account)	Blocked	Allowed if it’s an input to a further works-contract supply, or plant & machinery
Goods lost, stolen, destroyed, written off; gifts & free samples	Blocked	—
CSR expenditure (from 1 Oct 2023)	Blocked	—
Tax paid under composition, or on fraud demands (Section 74)	Blocked	—

The 180-day payment rule (Rule 37)

Proportionate reversal when you have exempt income (Rules 42 & 43)

If your business makes both taxable and exempt supplies — or uses inputs partly for non-business purposes — you can keep credit only on the taxable portion. The rest is reversed.

Common ITC for the month: ₹1,00,000
Total turnover: ₹50,00,000, of which exempt (e.g. interest income, exempt goods): ₹10,00,000
Exempt ratio = 20% → reverse ₹20,000, keep ₹80,000.

The claim deadline (Section 16(4))

Match everything to GSTR-2B and IMS

Common mistakes to avoid

Claiming ITC that isn’t in GSTR-2B — the single most common cause of demand + 18% interest.
Missing the 180-day reversal on unpaid supplier bills, then getting caught at audit.
Claiming blocked Section 17(5) items — client entertainment, staff insurance, office fit-outs, festive gifts.
Forgetting proportionate reversal when you have exempt income like interest or exempt goods.
Claiming full ITC on capital goods used partly for exempt supplies instead of the Rule 43 60-month split.
Missing the 30 November deadline for the previous year’s credit.

Frequently asked questions

Q: Is ITC on a car for my business allowed? A: Generally no for vehicles with 13 seats or fewer, unless you supply vehicles, transport passengers, or run a driving school.

Q: What’s the last date to claim last year’s ITC? A: 30 November after the financial year ends, or the date you file the annual return, whichever is earlier.

Keep your credit clean at the source

Some credits are barred no matter how genuine the business purpose. The most common ones that show up in notices:

Expense	Status	Key exception
Motor vehicles (≤13 seats) for personal/staff transport	Blocked	Allowed if you resell vehicles, run passenger transport, or driving training
Food & beverages, outdoor catering, health & beauty services	Blocked	Allowed if it’s your own line of business, or the law obliges you to provide it
Club, health & fitness centre membership	Blocked	—
Life & health insurance, rent-a-cab for staff	Blocked	Allowed where statutorily obligatory, or same line of business
Works contract & goods/services for construction of immovable property (own account)	Blocked	Allowed if it’s an input to a further works-contract supply, or plant & machinery
Goods lost, stolen, destroyed, written off; gifts & free samples	Blocked	—
CSR expenditure (from 1 Oct 2023)	Blocked	—
Tax paid under composition, or on fraud demands (Section 74)	Blocked	—

The 180-day payment rule (Rule 37)

Proportionate reversal when you have exempt income (Rules 42 & 43)

If your business makes both taxable and exempt supplies — or uses inputs partly for non-business purposes — you can keep credit only on the taxable portion. The rest is reversed.

Common ITC for the month: ₹1,00,000
Total turnover: ₹50,00,000, of which exempt (e.g. interest income, exempt goods): ₹10,00,000
Exempt ratio = 20% → reverse ₹20,000, keep ₹80,000.

The claim deadline (Section 16(4))

Match everything to GSTR-2B and IMS

Common mistakes to avoid

Claiming ITC that isn’t in GSTR-2B — the single most common cause of demand + 18% interest.
Missing the 180-day reversal on unpaid supplier bills, then getting caught at audit.
Claiming blocked Section 17(5) items — client entertainment, staff insurance, office fit-outs, festive gifts.
Forgetting proportionate reversal when you have exempt income like interest or exempt goods.
Claiming full ITC on capital goods used partly for exempt supplies instead of the Rule 43 60-month split.
Missing the 30 November deadline for the previous year’s credit.

Frequently asked questions

Q: Is ITC on a car for my business allowed? A: Generally no for vehicles with 13 seats or fewer, unless you supply vehicles, transport passengers, or run a driving school.

Q: What’s the last date to claim last year’s ITC? A: 30 November after the financial year ends, or the date you file the annual return, whichever is earlier.

Keep your credit clean at the source

Blocked credits you can never claim (Section 17(5))

Some credits are barred no matter how genuine the business purpose. The most common ones that show up in notices:

Expense	Status	Key exception
Motor vehicles (≤13 seats) for personal/staff transport	Blocked	Allowed if you resell vehicles, run passenger transport, or driving training
Food & beverages, outdoor catering, health & beauty services	Blocked	Allowed if it’s your own line of business, or the law obliges you to provide it
Club, health & fitness centre membership	Blocked	—
Life & health insurance, rent-a-cab for staff	Blocked	Allowed where statutorily obligatory, or same line of business
Works contract & goods/services for construction of immovable property (own account)	Blocked	Allowed if it’s an input to a further works-contract supply, or plant & machinery
Goods lost, stolen, destroyed, written off; gifts & free samples	Blocked	—
CSR expenditure (from 1 Oct 2023)	Blocked	—
Tax paid under composition, or on fraud demands (Section 74)	Blocked	—

The 180-day payment rule (Rule 37)

Proportionate reversal when you have exempt income (Rules 42 & 43)

If your business makes both taxable and exempt supplies — or uses inputs partly for non-business purposes — you can keep credit only on the taxable portion. The rest is reversed.

Common ITC for the month: ₹1,00,000
Total turnover: ₹50,00,000, of which exempt (e.g. interest income, exempt goods): ₹10,00,000
Exempt ratio = 20% → reverse ₹20,000, keep ₹80,000.

The claim deadline (Section 16(4))

Match everything to GSTR-2B and IMS

Common mistakes to avoid

Claiming ITC that isn’t in GSTR-2B — the single most common cause of demand + 18% interest.
Missing the 180-day reversal on unpaid supplier bills, then getting caught at audit.
Claiming blocked Section 17(5) items — client entertainment, staff insurance, office fit-outs, festive gifts.
Forgetting proportionate reversal when you have exempt income like interest or exempt goods.
Claiming full ITC on capital goods used partly for exempt supplies instead of the Rule 43 60-month split.
Missing the 30 November deadline for the previous year’s credit.

Frequently asked questions

Q: Is ITC on a car for my business allowed? A: Generally no for vehicles with 13 seats or fewer, unless you supply vehicles, transport passengers, or run a driving school.

Q: What’s the last date to claim last year’s ITC? A: 30 November after the financial year ends, or the date you file the annual return, whichever is earlier.

Keep your credit clean at the source

A fifth timing condition rides on top: you must pay the supplier the full invoice value (tax included) within 180 days, or reverse the credit — see below.

Blocked credits you can never claim (Section 17(5))

Some credits are barred no matter how genuine the business purpose. The most common ones that show up in notices:

Expense	Status	Key exception
Motor vehicles (≤13 seats) for personal/staff transport	Blocked	Allowed if you resell vehicles, run passenger transport, or driving training
Food & beverages, outdoor catering, health & beauty services	Blocked	Allowed if it’s your own line of business, or the law obliges you to provide it
Club, health & fitness centre membership	Blocked	—
Life & health insurance, rent-a-cab for staff	Blocked	Allowed where statutorily obligatory, or same line of business
Works contract & goods/services for construction of immovable property (own account)	Blocked	Allowed if it’s an input to a further works-contract supply, or plant & machinery
Goods lost, stolen, destroyed, written off; gifts & free samples	Blocked	—
CSR expenditure (from 1 Oct 2023)	Blocked	—
Tax paid under composition, or on fraud demands (Section 74)	Blocked	—

The 180-day payment rule (Rule 37)

Proportionate reversal when you have exempt income (Rules 42 & 43)

If your business makes both taxable and exempt supplies — or uses inputs partly for non-business purposes — you can keep credit only on the taxable portion. The rest is reversed.

Common ITC for the month: ₹1,00,000
Total turnover: ₹50,00,000, of which exempt (e.g. interest income, exempt goods): ₹10,00,000
Exempt ratio = 20% → reverse ₹20,000, keep ₹80,000.

The claim deadline (Section 16(4))

Match everything to GSTR-2B and IMS

Common mistakes to avoid

Claiming ITC that isn’t in GSTR-2B — the single most common cause of demand + 18% interest.
Missing the 180-day reversal on unpaid supplier bills, then getting caught at audit.
Claiming blocked Section 17(5) items — client entertainment, staff insurance, office fit-outs, festive gifts.
Forgetting proportionate reversal when you have exempt income like interest or exempt goods.
Claiming full ITC on capital goods used partly for exempt supplies instead of the Rule 43 60-month split.
Missing the 30 November deadline for the previous year’s credit.

Frequently asked questions

Q: Is ITC on a car for my business allowed? A: Generally no for vehicles with 13 seats or fewer, unless you supply vehicles, transport passengers, or run a driving school.

Q: What’s the last date to claim last year’s ITC? A: 30 November after the financial year ends, or the date you file the annual return, whichever is earlier.

Keep your credit clean at the source

A fifth timing condition rides on top: you must pay the supplier the full invoice value (tax included) within 180 days, or reverse the credit — see below.

Blocked credits you can never claim (Section 17(5))

Some credits are barred no matter how genuine the business purpose. The most common ones that show up in notices:

Expense	Status	Key exception
Motor vehicles (≤13 seats) for personal/staff transport	Blocked	Allowed if you resell vehicles, run passenger transport, or driving training
Food & beverages, outdoor catering, health & beauty services	Blocked	Allowed if it’s your own line of business, or the law obliges you to provide it
Club, health & fitness centre membership	Blocked	—
Life & health insurance, rent-a-cab for staff	Blocked	Allowed where statutorily obligatory, or same line of business
Works contract & goods/services for construction of immovable property (own account)	Blocked	Allowed if it’s an input to a further works-contract supply, or plant & machinery
Goods lost, stolen, destroyed, written off; gifts & free samples	Blocked	—
CSR expenditure (from 1 Oct 2023)	Blocked	—
Tax paid under composition, or on fraud demands (Section 74)	Blocked	—

The 180-day payment rule (Rule 37)

Proportionate reversal when you have exempt income (Rules 42 & 43)

If your business makes both taxable and exempt supplies — or uses inputs partly for non-business purposes — you can keep credit only on the taxable portion. The rest is reversed.

Common ITC for the month: ₹1,00,000
Total turnover: ₹50,00,000, of which exempt (e.g. interest income, exempt goods): ₹10,00,000
Exempt ratio = 20% → reverse ₹20,000, keep ₹80,000.

The claim deadline (Section 16(4))

Match everything to GSTR-2B and IMS

Common mistakes to avoid

Claiming ITC that isn’t in GSTR-2B — the single most common cause of demand + 18% interest.
Missing the 180-day reversal on unpaid supplier bills, then getting caught at audit.
Claiming blocked Section 17(5) items — client entertainment, staff insurance, office fit-outs, festive gifts.
Forgetting proportionate reversal when you have exempt income like interest or exempt goods.
Claiming full ITC on capital goods used partly for exempt supplies instead of the Rule 43 60-month split.
Missing the 30 November deadline for the previous year’s credit.

Frequently asked questions

Q: Is ITC on a car for my business allowed? A: Generally no for vehicles with 13 seats or fewer, unless you supply vehicles, transport passengers, or run a driving school.

Q: What’s the last date to claim last year’s ITC? A: 30 November after the financial year ends, or the date you file the annual return, whichever is earlier.

Keep your credit clean at the source

The four conditions to claim ITC (Section 16(2))

You can claim credit on a purchase only when all four of these are satisfied:

You hold a valid tax invoice or debit note from a registered supplier.
You have actually received the goods or the services.
The tax has reached the government and the invoice shows up in your GSTR-2B — this is the Section 16(2)(aa) condition that trips up most claims.
You have filed the GSTR-3B for that period.

A fifth timing condition rides on top: you must pay the supplier the full invoice value (tax included) within 180 days, or reverse the credit — see below.

Blocked credits you can never claim (Section 17(5))

Some credits are barred no matter how genuine the business purpose. The most common ones that show up in notices:

Expense	Status	Key exception
Motor vehicles (≤13 seats) for personal/staff transport	Blocked	Allowed if you resell vehicles, run passenger transport, or driving training
Food & beverages, outdoor catering, health & beauty services	Blocked	Allowed if it’s your own line of business, or the law obliges you to provide it
Club, health & fitness centre membership	Blocked	—
Life & health insurance, rent-a-cab for staff	Blocked	Allowed where statutorily obligatory, or same line of business
Works contract & goods/services for construction of immovable property (own account)	Blocked	Allowed if it’s an input to a further works-contract supply, or plant & machinery
Goods lost, stolen, destroyed, written off; gifts & free samples	Blocked	—
CSR expenditure (from 1 Oct 2023)	Blocked	—
Tax paid under composition, or on fraud demands (Section 74)	Blocked	—

The 180-day payment rule (Rule 37)

Proportionate reversal when you have exempt income (Rules 42 & 43)

If your business makes both taxable and exempt supplies — or uses inputs partly for non-business purposes — you can keep credit only on the taxable portion. The rest is reversed.

Common ITC for the month: ₹1,00,000
Total turnover: ₹50,00,000, of which exempt (e.g. interest income, exempt goods): ₹10,00,000
Exempt ratio = 20% → reverse ₹20,000, keep ₹80,000.

The claim deadline (Section 16(4))

Match everything to GSTR-2B and IMS

Common mistakes to avoid

Claiming ITC that isn’t in GSTR-2B — the single most common cause of demand + 18% interest.
Missing the 180-day reversal on unpaid supplier bills, then getting caught at audit.
Claiming blocked Section 17(5) items — client entertainment, staff insurance, office fit-outs, festive gifts.
Forgetting proportionate reversal when you have exempt income like interest or exempt goods.
Claiming full ITC on capital goods used partly for exempt supplies instead of the Rule 43 60-month split.
Missing the 30 November deadline for the previous year’s credit.

Frequently asked questions

Q: Is ITC on a car for my business allowed? A: Generally no for vehicles with 13 seats or fewer, unless you supply vehicles, transport passengers, or run a driving school.

Q: What’s the last date to claim last year’s ITC? A: 30 November after the financial year ends, or the date you file the annual return, whichever is earlier.

Keep your credit clean at the source

The four conditions to claim ITC (Section 16(2))

You can claim credit on a purchase only when all four of these are satisfied:

You hold a valid tax invoice or debit note from a registered supplier.
You have actually received the goods or the services.
The tax has reached the government and the invoice shows up in your GSTR-2B — this is the Section 16(2)(aa) condition that trips up most claims.
You have filed the GSTR-3B for that period.

A fifth timing condition rides on top: you must pay the supplier the full invoice value (tax included) within 180 days, or reverse the credit — see below.

Blocked credits you can never claim (Section 17(5))

Some credits are barred no matter how genuine the business purpose. The most common ones that show up in notices:

Expense	Status	Key exception
Motor vehicles (≤13 seats) for personal/staff transport	Blocked	Allowed if you resell vehicles, run passenger transport, or driving training
Food & beverages, outdoor catering, health & beauty services	Blocked	Allowed if it’s your own line of business, or the law obliges you to provide it
Club, health & fitness centre membership	Blocked	—
Life & health insurance, rent-a-cab for staff	Blocked	Allowed where statutorily obligatory, or same line of business
Works contract & goods/services for construction of immovable property (own account)	Blocked	Allowed if it’s an input to a further works-contract supply, or plant & machinery
Goods lost, stolen, destroyed, written off; gifts & free samples	Blocked	—
CSR expenditure (from 1 Oct 2023)	Blocked	—
Tax paid under composition, or on fraud demands (Section 74)	Blocked	—

The 180-day payment rule (Rule 37)

Proportionate reversal when you have exempt income (Rules 42 & 43)

If your business makes both taxable and exempt supplies — or uses inputs partly for non-business purposes — you can keep credit only on the taxable portion. The rest is reversed.

Common ITC for the month: ₹1,00,000
Total turnover: ₹50,00,000, of which exempt (e.g. interest income, exempt goods): ₹10,00,000
Exempt ratio = 20% → reverse ₹20,000, keep ₹80,000.

The claim deadline (Section 16(4))

Match everything to GSTR-2B and IMS

Common mistakes to avoid

Claiming ITC that isn’t in GSTR-2B — the single most common cause of demand + 18% interest.
Missing the 180-day reversal on unpaid supplier bills, then getting caught at audit.
Claiming blocked Section 17(5) items — client entertainment, staff insurance, office fit-outs, festive gifts.
Forgetting proportionate reversal when you have exempt income like interest or exempt goods.
Claiming full ITC on capital goods used partly for exempt supplies instead of the Rule 43 60-month split.
Missing the 30 November deadline for the previous year’s credit.

Frequently asked questions

Q: Is ITC on a car for my business allowed? A: Generally no for vehicles with 13 seats or fewer, unless you supply vehicles, transport passengers, or run a driving school.

Q: What’s the last date to claim last year’s ITC? A: 30 November after the financial year ends, or the date you file the annual return, whichever is earlier.

Keep your credit clean at the source

Input tax credit (ITC) is what stops GST from cascading: the tax you pay on business purchases is set off against the tax you collect on sales, so you only ever hand over the difference. It is also where most GST notices begin. A credit claimed on the wrong expense, a few days late, or on an invoice your supplier never filed can be reversed years later — with 18% interest. This guide sets out exactly what you can claim, what is permanently blocked under Section 17(5), when credit must be reversed under Rules 42 and 43, and the deadlines that make or break a claim. Position as of FY 2026-27.

At a glance

Four conditions (Section 16(2)) must all be met before you can claim any ITC.
Section 17(5) lists credits that are blocked for good — cars, staff food, club fees, office construction, CSR, free samples.
180-day rule (Rule 37): pay your supplier within 180 days of the invoice date or reverse the credit with interest.
Rules 42 & 43: if you have any exempt income, you must reverse ITC in proportion — monthly for inputs, over 60 months for capital goods.
Deadline (Section 16(4)): a year’s ITC must be claimed by 30 November of the following year, or the date you file the annual return, whichever is earlier.
Golden rule: no credit unless the invoice appears in your GSTR-2B (Section 16(2)(aa)).

The four conditions to claim ITC (Section 16(2))

You can claim credit on a purchase only when all four of these are satisfied:

You hold a valid tax invoice or debit note from a registered supplier.
You have actually received the goods or the services.
The tax has reached the government and the invoice shows up in your GSTR-2B — this is the Section 16(2)(aa) condition that trips up most claims.
You have filed the GSTR-3B for that period.

A fifth timing condition rides on top: you must pay the supplier the full invoice value (tax included) within 180 days, or reverse the credit — see below.

Blocked credits you can never claim (Section 17(5))

Some credits are barred no matter how genuine the business purpose. The most common ones that show up in notices:

Expense	Status	Key exception
Motor vehicles (≤13 seats) for personal/staff transport	Blocked	Allowed if you resell vehicles, run passenger transport, or driving training
Food & beverages, outdoor catering, health & beauty services	Blocked	Allowed if it’s your own line of business, or the law obliges you to provide it
Club, health & fitness centre membership	Blocked	—
Life & health insurance, rent-a-cab for staff	Blocked	Allowed where statutorily obligatory, or same line of business
Works contract & goods/services for construction of immovable property (own account)	Blocked	Allowed if it’s an input to a further works-contract supply, or plant & machinery
Goods lost, stolen, destroyed, written off; gifts & free samples	Blocked	—
CSR expenditure (from 1 Oct 2023)	Blocked	—
Tax paid under composition, or on fraud demands (Section 74)	Blocked	—

The 180-day payment rule (Rule 37)

Proportionate reversal when you have exempt income (Rules 42 & 43)

If your business makes both taxable and exempt supplies — or uses inputs partly for non-business purposes — you can keep credit only on the taxable portion. The rest is reversed.

Common ITC for the month: ₹1,00,000
Total turnover: ₹50,00,000, of which exempt (e.g. interest income, exempt goods): ₹10,00,000
Exempt ratio = 20% → reverse ₹20,000, keep ₹80,000.

The claim deadline (Section 16(4))

Match everything to GSTR-2B and IMS

Common mistakes to avoid

Claiming ITC that isn’t in GSTR-2B — the single most common cause of demand + 18% interest.
Missing the 180-day reversal on unpaid supplier bills, then getting caught at audit.
Claiming blocked Section 17(5) items — client entertainment, staff insurance, office fit-outs, festive gifts.
Forgetting proportionate reversal when you have exempt income like interest or exempt goods.
Claiming full ITC on capital goods used partly for exempt supplies instead of the Rule 43 60-month split.
Missing the 30 November deadline for the previous year’s credit.

Frequently asked questions

Q: Is ITC on a car for my business allowed? A: Generally no for vehicles with 13 seats or fewer, unless you supply vehicles, transport passengers, or run a driving school.

Q: What’s the last date to claim last year’s ITC? A: 30 November after the financial year ends, or the date you file the annual return, whichever is earlier.

Keep your credit clean at the source

At a glance

Four conditions (Section 16(2)) must all be met before you can claim any ITC.
Section 17(5) lists credits that are blocked for good — cars, staff food, club fees, office construction, CSR, free samples.
180-day rule (Rule 37): pay your supplier within 180 days of the invoice date or reverse the credit with interest.
Rules 42 & 43: if you have any exempt income, you must reverse ITC in proportion — monthly for inputs, over 60 months for capital goods.
Deadline (Section 16(4)): a year’s ITC must be claimed by 30 November of the following year, or the date you file the annual return, whichever is earlier.
Golden rule: no credit unless the invoice appears in your GSTR-2B (Section 16(2)(aa)).

The four conditions to claim ITC (Section 16(2))

You can claim credit on a purchase only when all four of these are satisfied:

You hold a valid tax invoice or debit note from a registered supplier.
You have actually received the goods or the services.
The tax has reached the government and the invoice shows up in your GSTR-2B — this is the Section 16(2)(aa) condition that trips up most claims.
You have filed the GSTR-3B for that period.

A fifth timing condition rides on top: you must pay the supplier the full invoice value (tax included) within 180 days, or reverse the credit — see below.

Blocked credits you can never claim (Section 17(5))

Some credits are barred no matter how genuine the business purpose. The most common ones that show up in notices:

Expense	Status	Key exception
Motor vehicles (≤13 seats) for personal/staff transport	Blocked	Allowed if you resell vehicles, run passenger transport, or driving training
Food & beverages, outdoor catering, health & beauty services	Blocked	Allowed if it’s your own line of business, or the law obliges you to provide it
Club, health & fitness centre membership	Blocked	—
Life & health insurance, rent-a-cab for staff	Blocked	Allowed where statutorily obligatory, or same line of business
Works contract & goods/services for construction of immovable property (own account)	Blocked	Allowed if it’s an input to a further works-contract supply, or plant & machinery
Goods lost, stolen, destroyed, written off; gifts & free samples	Blocked	—
CSR expenditure (from 1 Oct 2023)	Blocked	—
Tax paid under composition, or on fraud demands (Section 74)	Blocked	—

The 180-day payment rule (Rule 37)

Proportionate reversal when you have exempt income (Rules 42 & 43)

If your business makes both taxable and exempt supplies — or uses inputs partly for non-business purposes — you can keep credit only on the taxable portion. The rest is reversed.

Common ITC for the month: ₹1,00,000
Total turnover: ₹50,00,000, of which exempt (e.g. interest income, exempt goods): ₹10,00,000
Exempt ratio = 20% → reverse ₹20,000, keep ₹80,000.

The claim deadline (Section 16(4))

Match everything to GSTR-2B and IMS

Common mistakes to avoid

Claiming ITC that isn’t in GSTR-2B — the single most common cause of demand + 18% interest.
Missing the 180-day reversal on unpaid supplier bills, then getting caught at audit.
Claiming blocked Section 17(5) items — client entertainment, staff insurance, office fit-outs, festive gifts.
Forgetting proportionate reversal when you have exempt income like interest or exempt goods.
Claiming full ITC on capital goods used partly for exempt supplies instead of the Rule 43 60-month split.
Missing the 30 November deadline for the previous year’s credit.

Frequently asked questions

Q: Is ITC on a car for my business allowed? A: Generally no for vehicles with 13 seats or fewer, unless you supply vehicles, transport passengers, or run a driving school.

Q: What’s the last date to claim last year’s ITC? A: 30 November after the financial year ends, or the date you file the annual return, whichever is earlier.

Keep your credit clean at the source

At a glance

Four conditions (Section 16(2)) must all be met before you can claim any ITC.
Section 17(5) lists credits that are blocked for good — cars, staff food, club fees, office construction, CSR, free samples.
180-day rule (Rule 37): pay your supplier within 180 days of the invoice date or reverse the credit with interest.
Rules 42 & 43: if you have any exempt income, you must reverse ITC in proportion — monthly for inputs, over 60 months for capital goods.
Deadline (Section 16(4)): a year’s ITC must be claimed by 30 November of the following year, or the date you file the annual return, whichever is earlier.
Golden rule: no credit unless the invoice appears in your GSTR-2B (Section 16(2)(aa)).

The four conditions to claim ITC (Section 16(2))

You can claim credit on a purchase only when all four of these are satisfied:

You hold a valid tax invoice or debit note from a registered supplier.
You have actually received the goods or the services.
The tax has reached the government and the invoice shows up in your GSTR-2B — this is the Section 16(2)(aa) condition that trips up most claims.
You have filed the GSTR-3B for that period.

A fifth timing condition rides on top: you must pay the supplier the full invoice value (tax included) within 180 days, or reverse the credit — see below.

Blocked credits you can never claim (Section 17(5))

Some credits are barred no matter how genuine the business purpose. The most common ones that show up in notices:

Expense	Status	Key exception
Motor vehicles (≤13 seats) for personal/staff transport	Blocked	Allowed if you resell vehicles, run passenger transport, or driving training
Food & beverages, outdoor catering, health & beauty services	Blocked	Allowed if it’s your own line of business, or the law obliges you to provide it
Club, health & fitness centre membership	Blocked	—
Life & health insurance, rent-a-cab for staff	Blocked	Allowed where statutorily obligatory, or same line of business
Works contract & goods/services for construction of immovable property (own account)	Blocked	Allowed if it’s an input to a further works-contract supply, or plant & machinery
Goods lost, stolen, destroyed, written off; gifts & free samples	Blocked	—
CSR expenditure (from 1 Oct 2023)	Blocked	—
Tax paid under composition, or on fraud demands (Section 74)	Blocked	—

The 180-day payment rule (Rule 37)

Proportionate reversal when you have exempt income (Rules 42 & 43)

If your business makes both taxable and exempt supplies — or uses inputs partly for non-business purposes — you can keep credit only on the taxable portion. The rest is reversed.

Common ITC for the month: ₹1,00,000
Total turnover: ₹50,00,000, of which exempt (e.g. interest income, exempt goods): ₹10,00,000
Exempt ratio = 20% → reverse ₹20,000, keep ₹80,000.

The claim deadline (Section 16(4))

Match everything to GSTR-2B and IMS

Common mistakes to avoid

Claiming ITC that isn’t in GSTR-2B — the single most common cause of demand + 18% interest.
Missing the 180-day reversal on unpaid supplier bills, then getting caught at audit.
Claiming blocked Section 17(5) items — client entertainment, staff insurance, office fit-outs, festive gifts.
Forgetting proportionate reversal when you have exempt income like interest or exempt goods.
Claiming full ITC on capital goods used partly for exempt supplies instead of the Rule 43 60-month split.
Missing the 30 November deadline for the previous year’s credit.

Frequently asked questions

Q: Is ITC on a car for my business allowed? A: Generally no for vehicles with 13 seats or fewer, unless you supply vehicles, transport passengers, or run a driving school.

Q: What’s the last date to claim last year’s ITC? A: 30 November after the financial year ends, or the date you file the annual return, whichever is earlier.