GST Customs and Indirect Tax — Overview
INPUT TAX CREDIT UNDER GST 2.0
By Nagavarapu Bhavya Akshaya
What is ITC (Input Tax Credit)?
ITC is the credit businesses receive for the GST paid on purchases of goods/services, which can be used to offset the GST liability on sales.
What’s New in GST 2.0 for ITC?
Simplified structure = easier ITC tracking
With fewer tax slabs (5%, 18%, 40%), classification issues reduce, leading to fewer ITC mismatches or reversals.
Better invoice matching via AI/automation
GSTN (GST Network) will roll out AI-based invoice matching tools to reduce fraudulent ITC claims and auto-approve genuine ones.
Faster refunds for exporters / inverted duty structure
Refund process streamlined with auto-verification, faster release of ITC in cases like exports or input > output rate situations.
Stricter compliance checks
Businesses not filing returns or involved in circular trading will be flagged; ITC blocked if supplier defaults on taxes or filing.
No ITC on luxury / de-merit goods (40% slab)
Items in the 40% slab (like tobacco, luxury cars, pan masala) are either not eligible for ITC or face heavy restrictions.
Simplified return filing = automatic ITC crediting
Upcoming single GST return (likely replacing GSTR-1, 2A/2B, 3B etc.) will auto-calculate eligible ITC, reducing manual input.
Reverse Charge Mechanism (RCM) ITC eligibility continues
ITC on GST paid under RCM is still available, but stricter matching of nature of service and documentation.
Service sector benefit
Services (consulting, IT, etc.) with low input goods but high input services can now better utilise credit due to clearer classification under 18%.
Items Still Not Eligible for ITC
GST 2.0 retains some ineligible ITC rules under Section 17(5) of CGST Act. You cannot claim ITC on:
-
Personal use goods/services
-
Food, beverages, health services (except under obligations like canteens for workers)
-
Motor vehicles (except if used for business transport)
-
Works contract services for building construction (except for further supply)
-
Membership of clubs, fitness centers, etc.
Key Compliance Steps
Ensure Supplier files GSTR1
No ITC if supplier doesn’t file– use auto-match tools in GST portal.
Track ITC in GSTR-2B
Only ITC appearing in GSTR-2B is eligible for credit.
Reconcile Monthly
Match your books with portal data to avoid reversals and interest.
File returns on time
Delayed GSTR-3B leads to delayed ITC i.e, cash crunch.
Avoid fake invoices
GST 2.0 has stricter AI-based detection. Blacklisting leads to ITC loss.
To summarize, under GST 2.0, these processes in relation to Input Tax Credit are easier to reconcile due to uniform rate, faster to reflect in returns, more secure with real-time matching
Consult with A2consultants to explore our indepth knowledge and insight on GST 2.0
For detailed insights and practical guidance, visit our Knowledge Center and access our curated guides on India market entry: https://www.a2consultants.in/guides/international-taxation-in-india-for-foreign-companies
About the Author – Nagavarapu Bhavya Akshaya
Nagavarapu Bhavya Akshaya is a CA Final and CMA Final student and an All India Rank holder (AIR 31). With a strong academic foundation in accounting, taxation, and corporate laws, she brings a structured and analytical perspective to complex financial and regulatory topics. Her work focuses on simplifying technical subjects for professionals and businesses, with a special interest in international taxation, corporate structuring, and compliance advisory.
Need a Structural Review of your business prospects in India? > If you are looking to pounce on the FTA opportunity and looking to review your business prospects . [Contact A2 Consultants for a Private Consultation as we have lot of European clients whom we are aleady helping in their business in India] https://www.a2consultants.in/home/book_slot
