In Goods & Services Tax (GST) regime, Input Tax Credit stands as one of the most significant reforms aimed at eliminating the cascading effect of taxes. Introduced in July 2017, Input Tax Credit (ITC) is one of the foundational pillars of India’s Goods and Services Tax (GST) regime. It enables registered businesses to offset the GST paid on their purchases (inputs, input services, and capital goods) against the GST liability on their outward supplies (sales). This mechanism ensures that tax is levied only on the value added at each stage of the supply chain, eliminating the cascading effect of taxes (tax on taxes) that existed under the earlier indirect tax system VAT & Service Tax.

In simple terms, when a registered taxpayer pays GST on inward supplies used for business purposes, that tax amount can be claimed as credit in the electronic credit ledger. The net GST payable becomes Output Tax minus eligible ITC. This seamless flow of credit across the supply chain is central to GST’s design as a multi-stage, destination based value-added tax on each stage of the supply chain, with input tax credit (ITC) available to offset prior-stage taxes, ensuring only the final consumer bears the burden & cascading is avoided.

Section 16(1) of the CGST Act, 2017 provides that every registered person is entitled to take credit of input tax charged on any supply of goods or services (or both) used or intended to be used in the course or furtherance of business. The credit is credited to the electronic credit ledger. Composition scheme dealers under Section 10 are not eligible for ITC. The supply must have a clear business nexus, personal or non-business use does not qualify for ITC claim.

Mandatory Conditions under Section 16(2):Section 16(2) lays down cumulative conditions. All of them........

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