Input Tax Credit (ITC) is the mechanism that prevents tax-on-tax under GST. A business pays GST on its purchases (input tax) and collects GST on its sales (output tax); it pays the government only the difference, claiming credit for the input tax.
ITC is conditional: the supplier must have actually reported the invoice, the goods or services must be received, and the credit must not be blocked or restricted. Reconciling purchases against the auto-drafted GSTR-2B is how businesses protect their eligible ITC.
Claimed credit accumulates in the electronic credit ledger, a running balance on the GST portal, and it can be spent on one thing only: output tax. Interest, late fees, penalties and reverse-charge liabilities must all be paid in cash regardless of the balance held. The claim itself is made return by return, and the taxpayer carries the burden of proving entitlement — invoice, receipt, payment trail — if the claim is ever questioned.
Some credits are blocked outright regardless of business purpose: food and beverages, club memberships, personal consumption, and most construction of one's own premises sit on the blocked list, with motor vehicles restricted subject to defined exceptions. Other credits arrive but must be given back — reversed proportionately where inputs serve exempt supplies, and reversed with interest where a supplier's invoice stays unpaid beyond the period the law allows, becoming claimable again once payment is made.
The monthly rhythm looks like this: the purchase register shows, say, ₹21,000 of GST paid, but GSTR-2B shows only ₹18,000 because two suppliers have not filed. The prudent claim is the matched ₹18,000, with the gap logged supplier-wise and chased. Businesses that claim from the purchase register instead of the matched figure build an unverified balance that can surface later as a demand with interest — reconciliation before claiming is the discipline that prevents it.