Wrong ITC claim under GST can create an additional financial burden for businesses if the credit is not eligible or is wrongly availed and utilised.
In such cases, interest and, depending on the circumstances, penalty may also apply.
 How ITC Works Under GST
Input Tax Credit (ITC) allows a registered business to adjust eligible GST paid on purchases against its output tax liability.
However, simply having a tax invoice does not automatically make a business eligible to claim the credit.
The goods or services must have been received, and the relevant supplier information should be correctly reported in the GST system.
Businesses also need to check their purchase records against statements such as GSTR-2B.
If an invoice has not been properly reported by the supplier or contains an error, the buyer may face an issue with the corresponding ITC.
Wrong ITC claim under GST and 18% interest
Interest can become applicable when ITC has been wrongly availed and utilised.
The applicable interest rate is 18% per annum, with the calculation linked to the period for which the wrongly availed credit was utilised.
For example, if a business wrongly takes ITC of ₹1 lakh and uses that credit to pay its GST liability, the amount may have to be reversed along with applicable interest.
The business may also face a penalty depending on the circumstances of the case.
The key distinction is between merely availing an incorrect credit and actually utilising it.
Interest on wrongly availed and utilised ITC is calculated from the date of utilisation until the credit is reversed or the related tax is paid.
The 180-day payment rule
GST also has a specific provision related to payment to suppliers.
If a buyer does not pay the supplier the value of the supply along with the applicable tax within 180 days from the invoice date, the ITC taken on that purchase may have to be reversed along with applicable interest.
Once the required payment is made to the supplier, the credit may be re-availed subject to the applicable GST conditions.
 What businesses should check
Businesses should regularly review their purchase invoices, GSTIN details, tax amounts, GSTR-2B and accounting records before claiming ITC.
They should also verify whether the particular goods or services qualify for credit under GST rules.
Wrong ITC claim under GST can become more costly when an incorrect credit is actually used.
If an error is identified, businesses should take timely corrective action and reverse the incorrect credit where required.
