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Direct and Indirect Taxation · Input Tax Credit

Input Tax Credit Eligibility and Conditions under Section 16

Updated 10 October 2026 · Fact-checked

Input tax credit (ITC) is the credit of GST paid on purchases used in business. Under section 16 of the CGST Act, you must be registered, hold a tax invoice, receive the goods or services, have the tax actually paid to Government, file your return, and claim before the time limit.

Understand Eligibility and Conditions for Taking Input Tax Credit

GST is charged at every stage of a supply chain. If you could not set off the tax paid on purchases, tax would pile on tax. Input tax credit removes this cascading. You deduct the tax on your inputs from the tax on your sales and pay only the balance.

Section 16(1) gives the right. Every registered person may take credit of input tax charged on supplies of goods or services or both to him, which are used or intended to be used in the course or furtherance of his business. The credit goes to his electronic credit ledger. The right is subject to prescribed conditions and restrictions.

Section 16(2) then lists the conditions. It begins with "Notwithstanding anything contained in this section", so if any condition fails, credit is not available. Think of them as a checklist: (a) a valid tax document, (aa) the supplier has reported the invoice, (b) you received the goods or services, (ba) the credit shown to you has not been restricted, (c) tax actually paid to Government, and (d) you filed your return under section 39.

Two more limits sit beside the checklist. Section 16(3) denies credit on the tax part of capital goods if you claim depreciation on that tax component under the Income-tax Act, 1961. Section 16(4) sets a time limit for claiming credit on an invoice or debit note.

There are also provisos. Goods received in lots get credit only on receipt of the last lot. If you do not pay the supplier within 180 days of the invoice date, you must pay back the credit with interest (not for reverse charge supplies). You can claim it again once you pay.

Key rules to remember

Basic entitlement (section 16(1))
ITC allowed = tax on supplies to a registered person, used or intended to be used in the course or furtherance of business
Subject to prescribed conditions and credited to the electronic credit ledger.
Conditions in section 16(2)
(a) tax invoice or debit note + (aa) supplier has furnished it in outward supplies statement + (b) goods/services received + (ba) credit not restricted + (c) tax paid to Government + (d) return under section 39 filed
All must be met. Failing one means no credit for that supply.
Lots or instalments
Credit is taken on receipt of the last lot or instalment
First proviso to section 16(2). Applies where goods against one invoice arrive in parts.
180-day payment rule
If supplier not paid within 180 days from invoice date: credit availed must be paid back with interest under section 50
Does not apply to supplies on reverse charge. Credit can be availed again on payment to the supplier.
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
Example: for an invoice of FY 2026-27, the outer date is 30 November 2027.
Depreciation on tax (section 16(3))
If depreciation is claimed on the tax component of capital goods under the Income-tax Act, 1961, ITC on that tax component is not allowed
Text of the Act refers to the 1961 Act. You may either take ITC or depreciation on the tax part, not both.

How to solve Eligibility and Conditions for Taking Input Tax Credit questions

Use the same checklist for any question asking whether ITC can be claimed, and how much.

  1. 1Check that the claimant is a registered person and that the purchase is used or intended to be used in the course or furtherance of business.
  2. 2Check the document: a tax invoice or debit note from a registered supplier, or other prescribed tax paying document.
  3. 3Check that the supplier has furnished the invoice details in the outward supplies statement and that they are communicated to you, and that the credit is not restricted.
  4. 4Check receipt of goods or services, including deemed receipt. For lots, allow credit only on the last lot.
  5. 5Check that the tax has been actually paid to Government by the supplier, in cash or through ITC, and that you have filed your section 39 return.
  6. 6Check the 180-day payment rule and the time limit under section 16(4).
  7. 7Check section 16(3) if capital goods are involved and depreciation was claimed on the tax part. Also check blocked credits in the next topic.
  8. 8Compute eligible ITC, state the conditions failed with reasons, and conclude.

Quickest way: Six-gate checklist

When to use it: Use for MCQs and short case questions where you must decide quickly if credit is allowed.

  1. Registered? Business use? If no, stop.
  2. Invoice in hand and reported by supplier?
  3. Goods or services received? Lots: wait for the last lot.
  4. Tax paid to Government? Return filed?
  5. Within the 30 November or annual return date?
  6. Capital goods with depreciation on tax? Supplier unpaid beyond 180 days? Adjust.

Common mistakes in Eligibility and Conditions for Taking Input Tax Credit

  • Claiming credit as soon as the invoice is received, even though the goods have not arrived.

    Students focus on the invoice and forget the receipt condition in section 16(2)(b).

    Fix: Always confirm receipt. For goods in lots, credit comes only on the last lot.

  • Saying the time limit is 30 September.

    Older versions of the law used the September return date.

    Fix: The Act now says 30 November following the end of the financial year, or the annual return date, whichever is earlier.

  • Taking the later of the two dates in section 16(4).

    Students read it as a relief provision.

    Fix: The text says whichever is earlier. Compare both dates and pick the earlier.

  • Applying the 180-day reversal to reverse charge purchases.

    The proviso is remembered without its exception.

    Fix: The proviso excludes supplies on which tax is payable on reverse charge basis.

  • Allowing full ITC on capital goods where depreciation has also been claimed on the GST component.

    Students treat ITC and depreciation as independent.

    Fix: Under section 16(3), ITC on that tax component is not allowed. Say so with the section number.

  • Ignoring the condition that the supplier must have paid the tax and reported the invoice.

    Students think the buyer's own compliance is enough.

    Fix: Include clauses (aa), (ba) and (c) in your answer. Credit depends on the supplier's compliance too.

Worked examples

Example 1

Kaveri Traders, a registered dealer in Pune, bought goods from a registered supplier in January 2027 with CGST ₹9,000 and SGST ₹9,000. The tax invoice is held. The supplier has reported the invoice and paid the tax. Goods against the invoice were received in two lots: the first in January 2027 and the last in March 2027. Kaveri has filed its returns. State the ITC and when it can be claimed.

Show the solution
  1. All conditions of section 16(2) are met: tax invoice, reporting by supplier, tax paid, return filed.
  2. Goods came in lots, so under the first proviso credit is allowed on receipt of the last lot.
  3. The last lot came in March 2027, so credit can be taken in March 2027, not January.
  4. Total ITC = ₹9,000 + ₹9,000 = ₹18,000.

Answer: Eligible ITC is ₹18,000 (CGST ₹9,000 and SGST ₹9,000). It can be taken only on receipt of the last lot, in March 2027.

Example 2

Mehta Industries has an invoice dated 10 August 2026 (FY 2026-27) with IGST of ₹45,000 for goods received and used in business. The tax is paid by the supplier. Mehta has not yet claimed credit and has not filed its annual return. Up to what date can it claim the ITC? What if it claims on 5 December 2027?

Show the solution
  1. Under section 16(4), the last date is the 30th November following the end of the financial year to which the invoice pertains, or the date of furnishing the annual return, whichever is earlier.
  2. The financial year ends on 31 March 2027. The following 30 November is 30 November 2027.
  3. The annual return is not yet filed, so the earlier date is 30 November 2027 (or the annual return date, if earlier).
  4. A claim on 5 December 2027 is after 30 November 2027, so it is time-barred.
  5. The ₹45,000 cannot be claimed as ITC.

Answer: Mehta can claim up to 30 November 2027, or the date it files the annual return if that is earlier. A claim on 5 December 2027 is not allowed, so ₹45,000 is lost.

Exam tips

  • Write the section number with each condition, for example section 16(2)(b) for receipt. Examiners give step marks for them.
  • In case questions, list every condition and tick or cross it. Then conclude. This format earns marks even if you miss one point.
  • For MCQs, watch the words earlier, last lot and reverse charge. They decide the answer.
  • Remember section 16(3) and the 180-day rule as separate traps. They are easy two-mark MCQs.
  • Do not mix this topic with blocked credits. Eligibility conditions come first, then check the restrictions.

Practice questions from Input Tax Credit

Eligibility and Conditions for Taking Input Tax Credit 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 Input Tax Credit: frequently asked questions

Who can claim input tax credit under GST?

A registered person can claim ITC on supplies used or intended to be used in the course or furtherance of business. The supply must meet the conditions of section 16(2). The credit is added to the electronic credit ledger.

What is the time limit for claiming input tax credit?

Under section 16(4), credit on an invoice or debit note cannot be taken after 30 November following the end of the financial year of the invoice, or the date of furnishing the annual return, whichever is earlier.

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

No. Section 16(2)(c) requires that the tax charged on the supply has actually been paid to Government, in cash or through ITC. Clause (aa) also needs the supplier to have reported the invoice.

What happens if I do not pay my supplier within 180 days?

You must pay back the ITC you availed, along with interest under section 50. You can avail the credit again when you pay the supplier. This does not apply to reverse charge supplies.