Why your Input Tax Credit keeps getting stuck — and how to protect your cash flow

By CA Rahul Khurana · R Khurana & Associates · August 2026

Input Tax Credit is supposed to be simple: tax you already paid on purchases, offset against tax you collect on sales. In practice, for many businesses, ITC behaves like money trapped behind glass — visible in the books, unusable in the return. And because every rupee of unusable credit is a rupee of GST paid twice, stuck ITC is not an accounting nuisance. It is a cash-flow tax.

The four ways credit gets stuck

1. Your vendor didn’t file. Credit flows only through GSTR-2B — which is built from your suppliers’ filings. A vendor who delays or skips GSTR-1 breaks your credit chain, however genuine your invoice. Vendors with cancelled registrations are the harsher version of the same problem.
2. The 2B mismatch. Claim more in GSTR-3B than 2B supports and you are writing a future notice to yourself. Timing differences are normal; unexplained ones are dangerous.
3. The 180-day trap. Leave a supplier unpaid beyond 180 days from invoice and the law requires you to reverse the credit with interest (Rule 37). Ageing creditors quietly convert into GST liabilities.
4. Blocked categories. Section 17(5) blocks credit on items many businesses claim by habit — most motor vehicles, food and beverages, health insurance (unless mandated), construction on own account, gifts and free samples, personal-use goods. Claiming blocked credit doesn’t just fail; it invites reversal with interest and penalty.

The habits that keep credit flowing

• Reconcile 2B monthly, before filing — not annually, after the damage. Every gap gets a documented reason: timing, vendor default, or error.
• Grade your vendors on compliance. A supplier who files late is quoting you a hidden price premium. Check registration status before large transactions; keep payment proofs through banking channels.
• Watch creditor ageing monthly and clear or flag anything approaching 180 days.
• Screen expenses against Section 17(5) once a quarter, so blocked items never enter the claim in the first place.

These four checks are checkpoints 2, 6, 9, and 15 of our GST Health Checklist — the review we run for clients every quarter.

This article is general information, not professional advice. Provisions, thresholds, and due dates are amended from time to time — please confirm the current position or consult us before acting. © 2026 R Khurana & Associates, Chartered Accountants, Delhi.