Input tax credit on purchases: when supplier GST is (and isn't) a real cost
By Raghav Saxena, founder of AsliRate, former audit associate at KPMG · 22 October 2026 · 2 min read
Short answer
A GST-registered business can usually claim the GST it pays on business purchases as input tax credit, if it holds a valid tax invoice, has received the goods, the supplier has filed the invoice so it shows in GSTR-2B, the supplier has paid the tax, and the buyer has filed its own return. When those hold, GST is not a cost of the purchase. When they don't, it is.
Input tax credit (ITC) is why the same quote can cost two businesses different amounts. For a registered buyer who can claim it, supplier GST comes back. For anyone else, it is part of the price. Getting this right is often the difference between picking the right supplier and the wrong one.
The conditions for claiming credit
Section 16(2) of the CGST Act sets out the conditions. In plain terms, you can claim credit on a purchase when all of these are true:
- You hold a tax invoice (or debit note) from a registered supplier.
- The invoice appears in your GSTR-2B, which happens when the supplier reports it in their GSTR-1.
- You have received the goods. If they come in instalments, credit is available when the last lot arrives.
- The supplier has paid the tax to the government.
- You have filed your own GST return.
Two more rules matter for buyers. If you don't pay the supplier within 180 days of the invoice date, the credit on the unpaid amount has to be reversed (it can be reclaimed when you pay). And there is a time limit: credit for an invoice can't be taken after 30 November following the end of the financial year, or after you file the annual return, whichever is earlier.
Suppliers whose GST you can't claim
- Unregistered suppliers. They can't charge GST. The price is your cost.
- Composition scheme suppliers. They issue a bill of supply and can't pass on credit.
- Suppliers who don't file. If your invoice never reaches your GSTR-2B, you can't claim it until it does.
Some purchases are also blocked from credit under Section 17(5), for example goods for personal use. If a purchase falls in a blocked category, treat the GST as cost.
How credit changes which quote wins
Take a WhatsApp quote of ₹19.50 per box, GST and delivery included, from a supplier with a GSTIN. For 5,000 boxes you pay ₹97,500. If you can claim credit, the GST inside it (₹14,872.88) comes back, and the real cost is ₹82,627.12, or ₹16.53 a box.
Now suppose the same supplier had no GSTIN. There is no credit, so the cost is the full ₹97,500, or ₹19.50 a box. Against a competitor at ₹18 + GST with ₹6,000 freight (₹96,000 after credit), the ranking flips.
| Quote | Supplier has GSTIN | Real cost |
|---|---|---|
| ₹19.50 all inclusive | Yes | ₹82,627.12 |
| ₹18.00 + GST, ₹6,000 freight | Yes | ₹96,000.00 |
| ₹19.50 all inclusive | No | ₹97,500.00 |
Common questions
- Can I claim input tax credit if the supplier is not registered under GST?
- No. An unregistered supplier can't charge GST, so there is no tax to claim. The price you pay is the full cost.
- What is the time limit for claiming input tax credit?
- Under Section 16(4), by 30 November following the end of the financial year the invoice belongs to, or the date you file the annual return, whichever is earlier.
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