Indirect Tax Laws · Input Tax Credit

Eligibility and Conditions for Taking ITC (Section 16, CGST Act)

Updated 5 October 2026 · Fact-checked

Input tax credit under Section 16 is available to a registered person for supplies used in the course or furtherance of business, but only if conditions are met: valid tax invoice or debit note, invoice details reflected through GSTR-2B, receipt of goods or services, tax actually paid to the government, and return filed. Check each condition, then the time limit and the 180-day payment rule.

Understand Eligibility and Conditions for Taking ITC

Input tax credit (ITC) lets a business set off the GST it paid on purchases against the GST it collects on sales. Without it, tax would build up at every stage. Section 16 is the gateway: it says who may take credit and on what conditions.

The basic eligibility is in Section 16(1). You must be a registered person, and the goods or services must be used or intended to be used in the course or furtherance of business. Credit goes to your electronic credit ledger. Personal use does not qualify. Even a business purchase can be denied under other rules, such as blocked credits under Section 17(5), so Section 16 is only the first test.

Section 16(2) then lists the conditions. You get no credit unless all of them are met:

You hold a tax invoice or debit note issued by a registered supplier, or other prescribed tax-paying document.
The supplier has furnished the invoice details in their outward supply return, and these are communicated to you (they appear in GSTR-2B). This is the condition in Section 16(2)(aa).
You have received the goods or services. Goods delivered to a third person on your direction, before or during movement, are treated as received by you (bill-to-ship-to). Services are treated as received when provided to you or on your direction.
The tax charged has been actually paid to the government, in cash or by utilising admissible ITC. This is the condition in Section 16(2)(c).
You have furnished the return under Section 39 (GSTR-3B).

Two more limits matter. First, if goods come in lots or instalments, you take credit only on receipt of the last lot. Second, you must pay the supplier the value plus tax within 180 days of the invoice date. If you do not, the credit is added back to your output tax with interest, and you can re-claim it once you pay. Also, you cannot claim ITC on the tax part of a capital asset on which you claim depreciation.

Finally, there is a time limit in Section 16(4). You cannot take credit after 30 November following the end of the financial year to which the invoice or debit note relates, or the date of filing the annual return, whichever is earlier.

Key rules to remember

Core conditions, Section 16(2): ITC allowed only if: valid invoice/debit note + details in GSTR-2B [Section 16(2)(aa)] + goods/services received + tax paid to government [Section 16(2)(c)] + return filed; All conditions must be met together. Failing any one denies credit for that supply for the time being.
Time limit, Section 16(4): Last date = earlier of (30 November following the end of the financial year of the invoice/debit note) and (date of furnishing the annual return); Counted by the financial year of the invoice or debit note, not the month in which you received the goods.
180-day rule (second proviso to Section 16(2)): ITC to be reversed = Total ITC on invoice × (Unpaid amount including tax ÷ Invoice value including tax); Applies if the supplier is not paid within 180 days of invoice date. Add to output tax with interest under Section 50(1). Re-claim on payment. It does not apply where tax is payable under reverse charge.
Capital goods and depreciation, Section 16(3): ITC not allowed on the tax component of a capital asset on which depreciation is claimed under the Income-tax law; You must choose: ITC on the tax part, or depreciation on that part.
Goods in lots, proviso to Section 16(2): Credit on the invoice is taken on receipt of the last lot or instalment; Do not claim credit in parts as each lot arrives.

How to solve Eligibility and Conditions for Taking ITC questions

Use the same checklist for any Section 16 case. Write the answer in provision, facts, conclusion form.

1Confirm that the claimant is a registered person and that the purchase is for business use. Note if the facts hint at personal use or a blocked item under Section 17(5).
2Check the document: a tax invoice or debit note from a registered supplier, or a prescribed tax-paying document such as a bill of entry for imports.
3Check whether the invoice details appear in GSTR-2B. If the supplier has not reported them, credit cannot be taken for now.
4Check receipt. Look for lots, bill-to-ship-to, or services provided on your direction. Apply the deemed receipt rule.
5Check that the supplier has paid the tax to the government, and that you filed GSTR-3B.
6Apply the 180-day payment rule if the facts mention payment dates or unpaid balances. Compute the reversal and mention interest.
7Apply the Section 16(4) time limit to the financial year of the invoice. Find the earlier of 30 November and the annual return date.
8State the conclusion: full, partial, deferred or denied, with the reason.

Quickest way: Five-gate check in under two minutes

When to use it: Use for MCQs and for short case-scenario parts where you must decide quickly whether ITC is allowed.

Gate 1, Document: valid invoice or debit note? If no, stop.
Gate 2, GSTR-2B: is it reflected? If no, defer the claim until it appears, within the time limit.
Gate 3, Receipt: goods or services received or deemed received? Wait for the last lot if in instalments.
Gate 4, Payment: tax paid by supplier, return filed by you, and supplier paid within 180 days?
Gate 5, Time: invoice year's 30 November or annual return date, whichever is earlier, not yet passed.
If every gate is cleared, ITC is allowed. Otherwise name the failed gate in your answer.

Common mistakes in Eligibility and Conditions for Taking ITC

Treating the time limit as 30 November of the year in which the invoice was issued.
Students link the date to the calendar year or the month of the invoice.
Fix: The limit is 30 November following the end of the financial year to which the invoice relates. An invoice of February 2026 belongs to 2025-26, so the date is 30 November 2026.
Ignoring the annual return date in the 'whichever is earlier' test.
Students remember 30 November and forget the second limb.
Fix: Always compare both dates. If the annual return was filed before 30 November, that earlier date is the cut-off.
Claiming credit because the supplier issued an invoice, even though it is not in GSTR-2B.
Students treat the invoice as proof enough.
Fix: Section 16(2)(aa) needs the supplier to have furnished the details so they are communicated to you. Follow up with the supplier. Claim when the invoice shows in a later GSTR-2B, within the Section 16(4) limit.
Denying credit for goods delivered directly to a third party on the buyer's direction.
Students read 'received' as physical receipt at the buyer's premises.
Fix: The law deems goods received by the registered person when delivered to another person on their direction, whether as agent or otherwise, before or during movement.
Reversing the whole ITC when only part of the invoice is unpaid after 180 days.
Students apply the rule to the entire invoice.
Fix: Reverse only the ITC attributable to the unpaid portion, in proportion to the unpaid value including tax. Add interest and re-claim when you pay.
Taking credit in parts as each lot of goods arrives.
Students link credit to each physical delivery.
Fix: Take credit only when the last lot or instalment is received.

Worked examples

Example 1

Pranav Traders, a registered dealer, bought goods from Sanya Ltd. Invoice dated 10 February 2026 shows GST of ₹36,000. At Pranav's request, Sanya delivered the goods directly to Pranav's customer in Pune. Sanya filed GSTR-1 and paid the tax, but the invoice appeared in Pranav's GSTR-2B only for the October 2026 period. Pranav's annual return for 2025-26 was filed on 15 November 2026. Pranav claims the ₹36,000 in GSTR-3B for October 2026, filed on 18 November 2026. Is ITC allowed?

Show the solution

Provision: Section 16(2) needs a valid invoice, details in GSTR-2B, receipt, tax paid and a return filed. Section 16(4) sets the time limit.
Receipt: goods were delivered to Pranav's customer on Pranav's direction. This is deemed receipt by Pranav, so the receipt condition is met.
Other conditions: Pranav holds a valid invoice, Sanya reported it and paid the tax, and the invoice is now in GSTR-2B. These conditions are met.
Time limit: the invoice is dated 10 February 2026, which is in financial year 2025-26. The two dates are 30 November 2026 and the annual return date of 15 November 2026. The earlier is 15 November 2026.
Pranav claimed the credit in a return filed on 18 November 2026, after 15 November 2026. The claim is barred by Section 16(4).

Answer: ITC of ₹36,000 is not allowed. All Section 16(2) conditions are met, but the claim was made after the earlier date, 15 November 2026, the date of the annual return. Had Pranav claimed on or before 15 November 2026, the credit would have been allowed.

Example 2

Meera Foods Ltd purchased raw material on 1 April 2026. The invoice value is ₹11,80,000, including GST of ₹1,80,000 at 18%. Meera took full ITC. By the end of 180 days from the invoice date, Meera had paid the supplier only ₹7,08,000. The balance remains unpaid. Compute the ITC to be reversed and state the consequences.

Show the solution

Provision: under the second proviso to Section 16(2), if the supplier is not paid the value plus tax within 180 days from the invoice date, the ITC attributable to the unpaid amount is added to output tax liability with interest. The rule does not apply to reverse charge supplies.
Unpaid amount including tax = ₹11,80,000 − ₹7,08,000 = ₹4,72,000.
Reversal = ₹1,80,000 × (₹4,72,000 ÷ ₹11,80,000).
₹4,72,000 ÷ ₹11,80,000 = 0.4. So reversal = ₹1,80,000 × 0.4 = ₹72,000.
Consequence: Meera adds ₹72,000 to output tax liability and pays interest under Section 50(1) from the date the credit was availed until it is reversed. On later payment of the balance, Meera can re-claim the ₹72,000.

Answer: ITC to be reversed is ₹72,000, with interest under Section 50(1). It can be re-claimed once the unpaid ₹4,72,000 is paid to the supplier. The remaining ITC of ₹1,08,000 stays valid.

Exam tips

In case-scenario MCQs, look for the one fact that fails a condition: a missing GSTR-2B entry, an unpaid supplier, a late return, or an instalment delivery.
For time-limit questions, always write the invoice's financial year first. Then show both dates and pick the earlier.
For 180-day questions, compute the reversal on the unpaid portion only. Write the proportion step so you earn marks even if arithmetic slips.
In written answers, list the Section 16(2) conditions in order and apply each to the facts. Do not quote a clause number unless you are sure of it.
Link to related topics when asked: blocked credits under Section 17(5), reversals under Section 17, and matching through GSTR-2B.

Practice questions from Input Tax Credit

Eligibility and Conditions for Taking ITC in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Eligibility and Conditions for Taking ITC: frequently asked questions

Can I claim ITC if the supplier has not paid the tax to the government?

Under Section 16(2)(c), credit needs the tax charged to be actually paid to the government. If the supplier has not paid, the condition fails and credit is at risk, even if you paid the supplier. Check the facts of the question and state the condition and its effect.

What is the time limit for claiming ITC under GST?

You cannot take credit after 30 November following the end of the financial year of the invoice or debit note, or the date of the annual return, whichever is earlier. For a 2025-26 invoice, the outer date is 30 November 2026.

How do I claim ITC on invoices not reflected in GSTR-2B?

You cannot claim them until the supplier reports the invoice and it appears in your GSTR-2B, as Section 16(2)(aa) requires. Follow up with the supplier to file or amend their return. Once the invoice shows in a later GSTR-2B, claim it, provided you are within the Section 16(4) time limit.

Does the 180-day rule apply to every purchase?

No. It applies where you fail to pay the supplier the value plus tax within 180 days of the invoice date. It does not apply to supplies where you pay tax under reverse charge. If it applies, only the ITC on the unpaid part is reversed, with interest.

Is ITC allowed when goods are delivered to a third party?

Yes, if the delivery is on the registered person's direction. The law treats goods as received by the registered person when delivered to another person on their direction, whether acting as agent or otherwise, before or during movement.