The input tax credit guide covers whether an invoice is eligible. This page starts after that: you have an ITC figure, and you need to know how much cash you pay and which balances you use to get there.
Step 1: get the ITC figure right
Common mistake: Claiming ITC based only on your purchase register. You can only claim what is communicated to you in GSTR-2B.
To claim ITC, you must meet specific conditions. You must hold a valid tax invoice and actually receive the goods or services. The tax must be paid to the Government, and you must file your GSTR-3B return. The main condition is that the invoice must appear in your GSTR-2B as per Section 16(2)(aa) of the CGST Act.
GSTN’s manual gives the formula for Table 4: net ITC available, Table 4(C), is 4A − [4B(1) + 4B(2)], and that amount is credited to the electronic credit ledger. Table 4A is where credit is claimed and Table 4B is where reversals go. Rule 36(4) says credit on an invoice needs its details to have reached you in GSTR-2B, so the safe ceiling for the invoice credit in 4A is the 2B figure for the invoices that pass the Section 16 conditions. The ITC claim checklist and the eligible vs ineligible guide take you through those tests, and GSTR-3B meaning and format shows where the 2B figure lands.
Step 2: know the two ledgers
Under Section 49, money you deposit goes to the electronic cash ledger and the ITC you declare in your return goes to the electronic credit ledger. The credit ledger can be used only to pay output tax. Interest, late fee and reverse-charge tax are paid from the cash ledger, as GSTN’s manual says. Section 49(8) also fixes the order of payment of dues: self-assessed tax and other dues of earlier return periods first, then those of the current period, then other amounts.
Step 3: the order in which credit is used
Rule 88A and Section 49(5) fix it. Read the table by credit type.
| Credit available in | Used first against | Then against | Never against |
|---|---|---|---|
| IGST | IGST | CGST and SGST/UTGST, in any order (Rule 88A) | None |
| CGST | CGST | IGST, only after IGST credit is fully used (Section 49A, Rule 88A) | SGST/UTGST (Section 49(5)(e)) |
| SGST/UTGST | SGST/UTGST | IGST, only after IGST credit is fully used, and only where the CGST credit balance is not available for IGST (Section 49(5)(c)) | CGST (Section 49(5)(f)) |
One wrinkle. Section 49(5)(a) still prints “in that order” for IGST credit against CGST and then SGST, while Rule 88A says “in any order”. GSTN’s manual follows the rule, so we do too.
On the portal, GSTN says the tax to be paid through ITC is filled with the optimum utilisation and you can edit it, with the cash to pay changing as you do. Most months you will simply accept it. The order matters when you edit, and when you plan which balances to keep.
Rule 86B: a cash floor for large months
Where the value of taxable supply, other than exempt and zero-rated supply, in a month exceeds ₹50 lakh, Rule 86B stops you using the credit ledger for more than 99% of the output tax liability. So at least 1% is paid in cash. The rule lists exceptions, for example where the proprietor, karta, managing director or two partners have paid more than ₹1 lakh as income tax in each of the last two financial years, where a refund above ₹1 lakh was received in the preceding year, and Government departments and PSUs. Read the full rule before you rely on one.
Example: output tax of ₹10,00,000 in a month with ₹60 lakh of taxable supplies. Credit can pay at most ₹10,00,000 × 99% = ₹9,90,000, so ₹10,000 goes in cash even if you hold ₹12,00,000 of credit.
A simple example calculation
Let us look at a realistic example for a business named ABC Electronics.
During October 2026, ABC Electronics sells laptops and accessories. They collect a total of ₹1,50,000 as Output Tax from their customers.
In the same month, ABC Electronics buys inventory and pays for business services. They pay a total of ₹1,10,000 as Input Tax to their suppliers.
Before claiming this ₹1,10,000, the accountant checks GSTR-2B.
| Invoice | In books | In GSTR-2B | Result |
|---|---|---|---|
| INV-101 | ₹50,000 | ₹50,000 | Matched |
| INV-102 | ₹40,000 | ₹40,000 | Matched |
| INV-103 | ₹20,000 | ITC blocked |
Out of the ₹1,10,000 paid to suppliers, only ₹90,000 appears in GSTR-2B. The remaining ₹20,000 cannot be claimed this month.
ABC Electronics calculates their final payment like this:
- Output tax collected: ₹1,50,000
- Eligible ITC from GSTR-2B: ₹90,000
- Net GST payable in cash: ₹1,50,000 minus ₹90,000 is ₹60,000
ABC Electronics will pay ₹60,000 when filing GSTR-3B. They will track the missing ₹20,000 and claim it in a future month when the supplier files their return and the invoice appears in GSTR-2B.
Worked example: a Pune fasteners distributor, October 2026
First the ITC. The purchase register shows credit of ₹2,36,000. Some suppliers have not filed GSTR-1, so those invoices are not in GSTR-2B and are not claimed this month. All figures are GST by tax head.
| Line | IGST | CGST | SGST | Total |
|---|---|---|---|---|
| ITC in the purchase register | ₹1,28,000 | ₹54,000 | ₹54,000 | ₹2,36,000 |
| Less: not in GSTR-2B | ₹8,000 | ₹4,000 | ₹4,000 | ₹16,000 |
| ITC to use (equal to 2B) | ₹1,20,000 | ₹50,000 | ₹50,000 | ₹2,20,000 |
| Output tax, Table 3.1(a) | ₹45,000 | ₹90,000 | ₹90,000 | ₹2,25,000 |
Output tax of ₹2,25,000 against credit of ₹2,20,000 looks like ₹5,000 of cash. Whether it is ₹5,000 depends on how the IGST credit is spread, because CGST credit cannot pay SGST. IGST credit of ₹1,20,000 first clears the ₹45,000 of IGST liability, leaving ₹75,000 for CGST and SGST. Two ways to split it:
| After IGST liability is cleared | Split A | Split B |
|---|---|---|
| Left-over IGST credit used on CGST | ₹45,000 | ₹35,000 |
| Left-over IGST credit used on SGST | ₹30,000 | ₹40,000 |
| CGST liability left | ₹45,000 | ₹55,000 |
| CGST credit used (of ₹50,000) | ₹45,000 | ₹50,000 |
| SGST liability left | ₹60,000 | ₹50,000 |
| SGST credit used (of ₹50,000) | ₹50,000 | ₹50,000 |
| Cash to pay | ₹10,000 | ₹5,000 |
| CGST credit left in the ledger | ₹5,000 | Nil |
Check Split A: CGST liability is ₹90,000 − ₹45,000 = ₹45,000, which uses ₹45,000 of the ₹50,000 CGST credit and strands ₹5,000. SGST liability is ₹90,000 − ₹30,000 = ₹60,000, which exceeds the ₹50,000 SGST credit by ₹10,000, paid in cash. Split B: CGST liability is ₹90,000 − ₹35,000 = ₹55,000, so ₹5,000 in cash after ₹50,000 of credit. SGST liability is ₹90,000 − ₹40,000 = ₹50,000, fully covered. The total cash falls from ₹10,000 to ₹5,000, the figure the totals suggested. Taxable supplies here are far below ₹50 lakh, so Rule 86B does not apply.
Check against 2B before you set off
Set-off is the last step, not the first. Credit used at the payment screen is credit you have claimed, and GSTN says a filed GSTR-3B cannot be revised. If you claim above the 2B figure, you can receive a DRC-01C intimation, with seven days to pay or explain (reply guide). Section 50(3) separately charges interest on credit wrongly availed and utilised. So reconcile, act on IMS, recompute 2B, fix the ITC figure, and then set off. Monthly GSTR-3B is due on the 20th.
Common mistakes
- Treating ITC as one pool. A total of ₹2,20,000 of credit does not mean ₹2,20,000 can be used against any tax.
- Using IGST credit before checking the CGST/SGST split. The split decides whether credit is stranded.
- Expecting credit to pay interest or late fee. Those need cash.
- Forgetting reverse charge. Its tax is a cash payment, so the cash ledger must hold it.
- Ignoring Rule 86B in a big month. The 1% cash floor can leave the return unpayable if the ledger is empty.
Related guides
- ITC kya hai? Input tax credit ka matlab, shartein aur GSTR-2B se rishta
- ITC reclaim lapsed time limit: can you reclaim lapsed input tax credit in GST
- GST input tax credit on car purchase for company
- Common credit under GST: how Rules 42 and 43 split it
- Input tax credit reclaim procedure in GST: GSTR-3B steps
Frequently asked questions
How is GST payable calculated after ITC?
For each tax head, GST payable in cash is the output tax liability less the ITC of that head, and of other heads where the law allows, that you use against it. The credit comes from the electronic credit ledger and the balance is paid from the electronic cash ledger. Credit can pay output tax only.
In what order is IGST, CGST and SGST credit used?
Under Rule 88A, IGST credit is used first against IGST, and any IGST credit left can be used against CGST and SGST or UTGST in any order. CGST and SGST or UTGST credit can be used against IGST only after the IGST credit has been fully used.
Can CGST credit be used to pay SGST?
No. Section 49(5) says central tax credit cannot be used to pay State tax or Union territory tax, and State or Union territory tax credit cannot be used to pay central tax. Both can be used against IGST, after the IGST credit is fully used.
Can I use ITC to pay interest, late fee or reverse charge tax?
No. GSTN's manual says reverse charge liabilities can be paid only from the cash ledger, and that late fee and interest can be paid only from the cash ledger. Credit can pay output tax only.
What is Rule 86B?
Where taxable supplies other than exempt and zero-rated supplies exceed Rs 50 lakh in a month, Rule 86B stops you using the credit ledger for more than 99 per cent of the output tax liability. At least 1 per cent is paid in cash, unless an exception in the rule applies, such as income tax paid above Rs 1 lakh in each of the last two financial years.
Can I claim input tax credit if I have not paid the supplier yet?
You can claim it initially. However, you must pay the supplier within 180 days from the invoice date. If you fail to pay within 180 days, you must reverse the ITC and pay interest. You can reclaim the ITC later when you make the payment.
What happens if I claim more ITC than what is in my GSTR-2B?
If your claim in GSTR-3B exceeds the ITC available in GSTR-2B beyond a predefined limit, you will receive an intimation in Form DRC-01C. You must then file Form DRC-01C Part B to provide details and reconcile the difference.
Fix the ITC figure before you set off
Drop the month’s GSTR-2B (Excel or JSON) and your purchase register into gstr2bmatch.in. The report puts each invoice in a bucket: matched, value mismatch, in books but missing from 2B, in 2B but not in books, with likely IMS Pending invoices flagged separately, and totals the ITC at risk in rupees. It does not compute set-off or file GSTR-3B. Your GSTR-2B and purchase register files are read in your browser and never uploaded to any server.
Related: ITC on capital goods, blocked credit under Section 17(5), how GSTR-2B decides the ITC you claim.
Last checked: 10 October 2026. Sources: CGST Act, Section 49, Section 49A, Section 50, CGST Rules, Rule 88A, Rule 86B, GSTN manual: creation, saving, payment and filing of GSTR-3B, Rule 36(4), GSTN DRC-01C advisory.