Input Tax Credit: formula sheet

Key formulas

Core conditions, Section 16(2)

ITC allowed only if: tax invoice/debit note + supplier's details furnished and communicated + goods/services received + ITC not restricted under section 38 + tax paid to Government + return under section 39 filed

All conditions must be met together. Failure of any one denies credit for that supply.

Receipt in lots or instalments

Credit is allowed on receipt of the last lot or instalment

First proviso to section 16(2). Applies where goods against one invoice arrive in lots.

180-day payment rule

If supplier not paid within 180 days from invoice date, ITC availed must be paid back with interest under section 50

Does not apply to supplies on which tax is payable on reverse charge. Under Rule 37 the reversal is proportionate to the amount not paid, made in GSTR-3B for the tax period immediately following the 180 days.

Re-availing after payment

On later payment of value plus tax to the supplier, the ITC reversed can be re-availed

Third proviso to section 16(2) and Rule 37(2). The Section 16(4) time limit does not apply to re-availing credit that was reversed earlier, in accordance with the Act or the Rules (Rule 37(4)).

Time limit, Section 16(4)

Last date = 30 November following the end of the financial year of the invoice/debit note, or date of furnishing the annual return, whichever is earlier

Invoice of FY 2026-27 must be claimed by 30 November 2027 at the latest.

Depreciation bar, Section 16(3)

If depreciation is claimed on the tax component of capital goods under the Income-tax Act, no ITC on that tax component

The Act text refers to the Income-tax Act, 1961 as written.

Motor vehicles (clause a)

Blocked if seating capacity ≤ 13 persons (including driver), for transporting persons

Allowed if used for further supply of such vehicles, transportation of passengers, or training on driving such vehicles.

Vessels and aircraft (clause aa)

Blocked unless used for further supply, passenger transport, training on navigating or flying, or transport of goods

Goods transport is an exception for vessels and aircraft, not for small motor vehicles.

Insurance, servicing, repair (clause ab)

Blocked only to the extent they relate to vehicles, vessels or aircraft whose credit is blocked

Allowed where the vehicle is used for the permitted purposes, or the recipient manufactures such vehicles or supplies insurance on vehicles it insures.

Food, beauty, health, insurance etc. (clause b(i))

Blocked unless used for outward taxable supply of the same category, or as an element of a taxable composite or mixed supply

Example: a caterer buying food to supply catering can claim credit.

Club and travel benefits (clause b(ii), b(iii))

Club or fitness membership: blocked. Employee vacation travel such as LTC: blocked

Allowed where the employer is obliged to provide it under any law in force.

Construction (clauses c and d)

Works contract or goods and services for construction of immovable property other than plant and machinery: blocked

Works contract credit is allowed if it is an input service for further supply of works contract service. Clause (d) applies on own account, even in business use.

Other blocks

Section 10 tax paid; non-resident taxable person (except imported goods); CSR; personal use; lost, stolen, destroyed, written-off, gifts, free samples; tax under section 74 for periods up to FY 2023-24

These have no general business-use exception.

Common credit (Rule 42)

Common credit = Total ITC − exclusively exempt − non-business − blocked − exclusively taxable

Only this balance is apportioned. Exclusive exempt, non-business and blocked credit are fully ineligible.

Reversal on common credit (Rule 42)

Reversal = Common credit × (Exempt turnover ÷ Total turnover)

Worked monthly, then adjusted at year end with interest on any shortfall. Check current rule text for the annual adjustment dates.

Capital goods credit (Rule 43)

Monthly credit = Credit on capital goods ÷ 60; exempt part = monthly credit × (Exempt turnover ÷ Total turnover)

Applies to capital goods used for both taxable and exempt supplies. Goods used wholly for exempt supplies get no credit.

Non-payment to supplier (Rule 37)

Reverse ITC proportionate to the unpaid amount, in GSTR-3B for the tax period immediately following the 180 days from invoice date

With interest under section 50. Does not apply to reverse charge supplies. You can re-avail when you pay.

Supplier default (Rule 37A)

Reverse in GSTR-3B on or before 30 November following the financial year of availing, if the supplier had not filed GSTR-3B by 30 September

Applies where the supplier's GSTR-1 shows the invoice but its GSTR-3B is unfiled. If not reversed, it is payable with interest under section 50. Re-avail when the supplier files.

Documents for ITC (Rule 36(1))

Supplier invoice | section 31(3)(f) invoice (with tax paid) | supplier debit note | bill of entry | ISD invoice or credit note

Learn all five. A credit note is not in the list for the recipient, except an ISD credit note.

Particulars condition (Rule 36(2))

All applicable Chapter VI particulars; or, under the proviso, tax amount + description + total value + GSTINs + place of supply (inter-State)

The proviso saves a document that is missing other particulars.

Matching condition (Rule 36(4))

ITC allowed only if (a) supplier furnished details in GSTR-1 / GSTR-1A / IFF AND (b) credit communicated in GSTR-2B

Both limbs must be met. It applies to documents covered by section 37(1).

Fraud bar (Rule 36(3))

No ITC on tax paid under an order confirming demand for fraud, wilful misstatement or suppression of facts under section 74

Applies to tax paid in pursuance of the order.

Credit on entry (Section 18(1)(a) and (b))

Eligible credit = ITC on inputs in stock + inputs contained in semi-finished and finished goods in stock, on the day before liability or grant of registration

No credit on capital goods. For (a), registration must be applied for within 30 days of becoming liable. For (b), the date is the day before grant of registration.

Credit on exit from composition (Section 18(1)(c))

Eligible credit = ITC on inputs in stock + inputs in semi-finished/finished goods + capital goods (reduced by prescribed percentage points), on the day before liability under section 9

The reduction applies only to capital goods.

Exempt supply becomes taxable (Section 18(1)(d))

Credit on stock relatable to the exempt supply + capital goods used exclusively for it (capital goods reduced by prescribed percentage points)

Measured on the day before the supply becomes taxable.

Payment on opting for composition or wholly exempt supplies (Section 18(4))

Amount payable = ITC on inputs in stock + inputs in semi-finished/finished goods + capital goods, with prescribed percentage points reduction, on the day before the option or exemption

Paid by debit of the electronic credit ledger or cash ledger. Any balance in the credit ledger then lapses.

Sale of capital goods on which ITC was taken (Section 18(6))

Payable = higher of (ITC taken on the capital goods less prescribed percentage points) and (tax on transaction value under section 15)

For refractory bricks, moulds, dies, jigs and fixtures sold as scrap, tax on the transaction value may be paid.

Time limit (Section 18(2))

Credit under 18(1) not allowed after one year from the date of the tax invoice

Applies to each supply, not to the date of registration.

Transfer of business (Section 18(3), Rule 41)

Transfer unutilised credit in ITC-02; demerger credit is apportioned in the ratio of the value of assets of the new units

Value of assets means the entire assets of the business, whether or not ITC was taken on them.

Credit share of recipient R1

C1 = (t1 ÷ T) × C

C = credit to be distributed; t1 = turnover of R1 in the relevant period; T = total turnover of all recipients to whom the service is attributable.

Timing and cap

Distribute in the same month; amount distributed ≤ credit available

Report in FORM GSTR-6. Distribution cannot exceed the credit available.

Relevant period

Preceding financial year; else last quarter with turnover details of all recipients

The preceding financial year applies if the recipients have turnover in their States or Union territories in it. If some or all do not, use the last quarter for which turnover details of all recipients are available, before the month of distribution.

Nature of credit distributed

IGST → IGST to all; CGST+SGST/UTGST → CGST+SGST/UTGST (same State) or IGST (other State)

For a recipient in another State, the IGST amount equals the aggregate of CGST and SGST/UTGST credit that qualifies for that recipient.

Documents

ISD invoice for distribution; ISD credit note for reduction

The ISD invoice must clearly state that it is issued only for distribution of input tax credit. Rule 54(1) governs these documents.

Credit note from supplier

Apportion reduction in the ratio of the original distribution

Reduce it from the amount distributed in the month the credit note is included in GSTR-6. If the amount would turn negative, add it to the recipient's output tax liability.

IGST credit

IGST credit → IGST first → then CGST → then SGST/UTGST

Section 49(5)(a). For any payment, the IGST credit available must first be fully utilised before CGST, SGST or UTGST credit is used for that payment (Section 49A).

CGST credit

CGST credit → CGST first → balance to IGST

Section 49(5)(b). Never to SGST or UTGST.

SGST/UTGST credit

SGST (or UTGST) credit → SGST (or UTGST) first → balance to IGST only if CGST credit is not available for IGST

Section 49(5)(c) and (d) with provisos.

Prohibited cross-use

CGST credit ✗ SGST/UTGST liability; SGST/UTGST credit ✗ CGST liability

Section 49(5)(e) and (f).

Credit ledger scope

Credit ledger → output tax only; Cash ledger → tax, interest, penalty, fee, other amounts

Section 49(3) and (4).

Order of discharge of dues

Self-assessed dues of earlier periods → self-assessed dues of current period → other amounts, including demands under Sections 73, 74 or 74A

Section 49(8).

Quick revision

• Credit is restricted to the extent of business use under Section 17(1).
• For mixed taxable and exempt use, credit is restricted to the part attributable to taxable supplies including zero-rated supplies, under Section 17(2).
• Exempt supply value includes supplies on which the recipient pays tax on reverse charge, transactions in securities, sale of land and, subject to the Schedule II condition, sale of building.
• Banks and NBFCs accepting deposits or giving loans can either apportion under Section 17(2) or take 50% of eligible credit each month, with the rest lapsing.
• The 50% option, once chosen, cannot be withdrawn for the rest of the financial year.
• The 50% restriction does not apply to supplies between registered persons having the same PAN.
• Credit is blocked on goods and services for construction of immovable property other than plant and machinery, even when used in business.
• Credit is blocked for persons paying tax under the composition scheme (section 10), for non-resident taxable persons except on imports, and for personal consumption.
• Credit is blocked on goods lost, stolen, destroyed, written off, or given as gifts or free samples.
• Credit is blocked on goods or services used for CSR activities under section 135 of the Companies Act, 2013.
• Food, outdoor catering, beauty treatment, club membership and life or health insurance are blocked, subject to the stated provisos.
• Plant and machinery excludes land, buildings and civil structures, telecommunication towers and pipelines laid outside the factory.

Common mistakes

• Claiming credit on the first lot of goods received in instalments. Fix: Remember the first proviso: credit is allowed only upon receipt of the last lot or instalment.
• Treating the 180 days as permanent loss of credit. Fix: Credit is paid back with interest, but can be re-availed once payment is made to the supplier. The Section 16(4) time limit does not apply to re-availing credit that was reversed earlier, in accordance with the Act or the Rules.
• Blocking a vehicle seating more than thirteen persons. Fix: Clause (a) covers only vehicles for transporting persons with seating capacity of not more than thirteen including the driver.
• Allowing credit on a small car used for goods transport. Fix: For small motor vehicles, the exceptions are further supply, passenger transport and driving training only.
• Applying the turnover ratio to total ITC instead of only common credit Fix: Always carve out exclusive, non-business and blocked credits first and apportion only the common credit.
• Using exempt turnover ÷ taxable turnover as the ratio Fix: The denominator is total turnover, including exempt supplies.
• Applying the old 5% provisional credit limit Fix: That text was substituted from 1 January 2022. Now credit depends on the invoice appearing in GSTR-2B.
• Treating GSTR-2A and GSTR-2B as the same Fix: GSTR-2A is dynamic and changes. GSTR-2B is static for a month. Rule 36(4) refers to GSTR-2B.
• Allowing credit on capital goods for a newly registered person. Fix: Section 18(1)(a) and (b) cover only inputs and inputs in semi-finished or finished goods. Capital goods are covered only in (c) and (d).
• Taking credit on stock when registration was applied for after 30 days. Fix: Check the gap between becoming liable and applying. Under (a), the application must be within thirty days.

Exam tips

• Write the conditions of section 16(2) as a list with clause letters. Examiners award marks per condition.
• In case questions, apply each condition to the facts and give a clear conclusion for each.
• For the 180-day rule, always state the three points: reverse charge exclusion, interest, and the right to re-avail.
• Quote the 30 November deadline correctly and use the earlier of that date or the annual return date.
• Check whether the question asks about the Act or the Rules. The reversal mechanics are in Rule 37.
• Write the clause or the rule in plain words next to each blocked item. Examiners give marks for the reason.
• Always state the exception for each blocked item, even in a short answer.
• In a case scenario, watch for words like capital, own account, plant and machinery, and seating capacity.