The advice you usually get is "keep every bill, your CA will sort out the credit at filing." It sounds responsible. It is also how a lot of GST-registered owners end up with a year's worth of receipts, an afternoon lost to sorting them, and an input tax credit number that comes in lower than they expected — because most of what they kept was never claimable, and some of what was claimable failed on a condition they never knew existed.
Input tax credit isn't a reward for keeping paper. It's a credit the law lets you take when five specific conditions are met, on a specific kind of document, inside two deadlines. Miss any of it and the credit is gone — sometimes permanently. Here's what actually matters, and what you can stop worrying about.
A quick note before we start: this is a plain-language guide, not a substitute for your own CA's advice on your specific facts. GST has genuinely contested edges, and I'll point them out as we go.
A receipt is not a tax invoice
This is the distinction that decides everything, and it's the one most people get wrong at the counter.
The thermal slip a café hands you, the "bill" from a shop that has your order but not your GSTIN — those are receipts. They prove you spent money. They do not entitle you to input tax credit. ITC flows only from a valid tax invoice, and a tax invoice has to carry specific things:
- The supplier's GSTIN
- A serial invoice number and date
- A description of the goods or services
- The GST rate and the tax amount, shown separately
- For a B2B purchase, your GSTIN on the invoice
That last one is the kicker. If your GSTIN isn't on the document, the credit isn't yours to take — the supplier has billed it as if you were an ordinary consumer. And you can't fix that after the fact by editing a photo. You have to ask for a proper tax invoice, with your GSTIN, at the time of the purchase. The receipt you grabbed silently and the invoice you asked for are two different documents, and only one of them is worth anything for ITC.
If you take one thing from this post: train yourself, and anyone who spends on the business, to ask "tax invoice with our GSTIN, please" before paying. Everything below depends on it.
The five conditions, all of which must hold
Section 16(2) of the CGST Act lists the conditions for claiming ITC, and the important word is cumulative — every one must be satisfied. Miss a single one and the credit is ineligible, and can be reversed years later in an audit.
Here's the checklist:
- You hold a valid tax invoice (or debit note, or bill of entry for imports).
- The invoice shows up in your GSTR-2B — meaning your supplier actually reported it in their return.
- You actually received the goods or services.
- The supplier actually paid the tax to the government, and you've filed your own return (GSTR-3B).
- The purchase was for business use, in the course or furtherance of business.
Now read conditions 2 and 4 again, because here's the part the "keep every bill" advice never mentions: two of these are completely outside your control. You can hold a flawless tax invoice, have genuinely received the goods, and have paid the supplier in full — and still lose the credit, because the supplier never reported the invoice (so it never appears in your 2B) or never paid the tax over to the government.
This is why ITC is really two jobs, not one. Keeping the right documents is the first. Reconciling them against your GSTR-2B every month — checking that what you're claiming actually matches what your suppliers filed — is the second, and it's the one that catches the expensive surprises while you can still chase the supplier to fix them.
The two deadlines that quietly kill ITC
Even a perfect, fully-matched invoice has an expiry date. Two of them, in fact.
The claim window. You have to claim the credit for an invoice by the 30th of November of the following financial year (or by the date you file your annual return, whichever is earlier). After that, it lapses — permanently. A concrete example: an invoice dated 15 June 2026 has to be claimed on or before 30 November 2027. Sit on it past that and the credit is simply gone; there's no appeal for "I forgot."
The 180-day payment rule. If you don't pay your supplier within 180 days of the invoice date, you have to reverse the ITC you claimed — and pay 18% interest on it, running from the date you originally took the credit. The good news is it's not permanent: once you actually pay the supplier, you can reclaim it. But the interest you've already racked up doesn't come back.
The practical defence here is dull and effective: run a 180-day ageing report on your unpaid purchase invoices at every month-end. Anything crossing about 150 days should trigger a payment or a reminder. Don't wait for day 181 to find out you've created an interest liability.
There's a related trap worth naming. Under Rule 37A, even if your supplier reported the invoice (so it showed in your 2B) but then failed to pay their tax for the year by the following 30 September, you have to reverse the credit. You did everything right and still carry the cost. It's one of the genuinely unfair corners of the system, and the only real defence is to prefer suppliers who file cleanly.
The receipts that are worthless for ITC
A useful counterpart to "what to keep" is "what you can stop agonising over." Some purchases are blocked from ITC no matter how perfect the invoice — under Section 17(5), the credit is denied even when every Section 16 condition is met.
The ones a small business actually runs into:
- Motor vehicles with seating capacity up to 13 persons — cars, SUVs, two-wheelers — unless you're in the business of reselling them, transporting passengers or goods, or running a driving school.
- Personal-use purchases, or anything used for making exempt supplies.
- Food, beverages, and club/health memberships, outside narrow exceptions.
And the bluntest one of all: if you're not GST-registered, you can't claim ITC at all — regardless of how much GST you paid on your purchases. Registration is the gate to the entire system.
For these, you don't need to chase a tax invoice or reconcile anything for credit purposes. Keep what you need for income-tax and your own records, and otherwise let them go. They're noise on the ITC side.
How long to keep all of this
Once you've claimed correctly, the paper (or the pixels) still has to stick around — but not forever, despite what you may have been told.
Section 36 of the CGST Act sets the retention period at 72 months — six years — from the due date of the annual return for that financial year. That's the number. The "keep everything indefinitely" instinct is overkill for GST records.
The one extension: if you're party to an appeal, revision, or investigation, you keep the relevant records until one year after that's finally disposed of, or the six years, whichever is later.
And the relief most people don't realise they have: electronic records are fine. You don't need the physical paper. What the law cares about is that your records are complete, legible, and — the load-bearing word — retrievable. A clean, searchable archive meets the bar. A camera roll of 2,000 unnamed photos technically stores the data but fails the moment someone asks you to produce a specific invoice from three years ago.
A system that survives an audit
Put it together and the whole thing is five habits, not a filing degree:
- Ask for a tax invoice with your GSTIN at the point of purchase. No GSTIN, no credit — fix it then, not later.
- File it the moment you get it, separated by company / GSTIN if you run more than one. Commingling is what makes month-end miserable.
- Reconcile against GSTR-2B monthly. Claim what matches; chase the suppliers whose invoices are missing while there's still time.
- Watch the two clocks — claim by 30 November of the next financial year, pay suppliers inside 180 days.
- Keep the lot for six years, somewhere searchable that you control.
None of this requires heroics. It requires that the right document gets captured at the counter and lands somewhere you can find it later — which, honestly, is the entire reason I'm building Starlog. It keeps each company's receipts in your own Google Drive in a clean per-year tree, and its exports drop into Tally as vouchers your accountant can reconcile against your 2B without retyping. But the system above stands on its own, with or without any app. The credit is yours when the document is right, the match is clean, and the clocks haven't run out. Everything else is just paper.