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Concepts · Glossary

ITC (Input Tax Credit)

GST paid on business purchases that you can deduct against your output GST liability.

Updated 2026-10-08Source: Income-tax Act · CGST Act · CBDT/CBIC

What it means

Input Tax Credit, governed by Sections 16–21 of the CGST Act, 2017, is the mechanism that makes GST non-cascading: the GST you pay on your business inputs (software subscriptions, cloud hosting, co-working rent, professional services, equipment) is credited against the GST you collect on your invoices. Only the net difference — output GST minus ITC — is remitted to the government.

Eligibility conditions under Section 16(2): (a) you have a valid tax invoice; (b) the supplier has filed their GSTR-1 and the invoice appears in your GSTR-2B (per Section 16(2)(aa) inserted by Finance Act 2021); (c) you have received the goods or services; (d) the tax has been paid by the supplier; (e) you have filed your own GST returns. Blocked credits under Section 17(5) cannot be claimed — the key blocked categories for freelancers include motor vehicles (non-commercial use), food/beverages, club memberships, and personal expenses.

For freelancers, eligible ITC typically includes: domain hosting, cloud services (AWS/GCP/Azure Indian invoices), SaaS tools with Indian GST invoices, co-working space rent, professional fees from sub-contractors, and equipment used exclusively for business.

A worked example

Priya pays Rs. 12,000 + Rs. 2,160 GST on AWS Mumbai invoices in April 2026. The Rs. 2,160 appears in her GSTR-2B (generated 14 May). She claims Rs. 2,160 as ITC in her April GSTR-3B, reducing her output GST payable by that amount.

ITC claims are capped at what appears in GSTR-2B (Rule 36(4)) — you cannot claim ITC on a purchase simply because you have the invoice. If your supplier filed late, their invoice flows into next month's 2B, and you must wait.

Run it on your own numbersFree GST Invoice Generator — no signup.

FAQ

Can I claim ITC on my laptop or phone used for freelance work?
Yes, if the device is used exclusively for business and the supplier is a GST-registered entity who has issued a tax invoice to your GSTIN. If the device is also used personally, Section 17(1) restricts the credit to the business-use share — your CA can help compute the business-use ratio.
Does a composition scheme freelancer get ITC?
No — composition dealers are explicitly barred from claiming ITC under Section 10(4) of the CGST Act. This is one of the key trade-offs of choosing the composition scheme over regular registration.

Look up the details

Track ITC-eligible expenses and reconcile with GSTR-2B in HourSlip →Built into HourSlip — free to start.

Sources

Income-tax entries cite the Income-tax Act 1961, which governs FY 2025–26 (the return filed in 2026); from tax year 2026–27 the Income-tax Act 2025 applies, with new section numbers shown where we give them. GST law is unchanged. General information, not tax advice; verify with your CA before you file.

Related terms

GST

GSTR-2B

Auto-drafted, static monthly ITC statement showing which inward supplies you can claim.GST

GSTR-3B

Monthly summary return where you pay GST liability and claim Input Tax Credit.GST

Composition Scheme

GST lite registration for small suppliers — fixed low rate, no ITC, Bill of Supply instead of Tax Invoice.

Compliance without the vocabulary

Learn it once, or never learn it.

HourSlip works out the GST on each invoice, logs every TDS deduction and estimates your advance-tax instalments — you check the numbers, and the glossary stays optional.

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