Section 16 – Input Tax Credit

December 1, 2025
CGST Act

Section 16(1) – Eligibility to Input Tax Credit

Section 16(1) grants a registered person the right to avail ITC on inward supplies used in the course or furtherance of business. The entitlement is not unconditional; it must satisfy later subsections and rules. This provision ensures a seamless credit chain but restricts credit where supplies relate to personal use, exempt transactions, or blocked categories under Section 17(5). It forms the foundation of GST input tax mechanism.

Eligibility Requirements

ITC can be availed only by a registered person engaged in taxable business activities.
Credit is allowed for goods, services, or both strictly used for business operations.
Eligible ITC will be posted to the Electronic Credit Ledger after fulfilment of all conditions.
No ITC is permitted for inward supplies used for personal or non-business consumption.
ITC is not allowed when outward supplies are exempt, nil-rated, or non-taxable under GST.
Tax credit is further restricted by blocked credit conditions under Section 17(5).

Section 16(2) – Mandatory Conditions for Availing ITC

This subsection prescribes the essential statutory conditions without which ITC cannot be availed. These conditions ensure that ITC is linked to genuine supplies supported by proper documentation, actual receipt, supplier compliance, and return filing. The law also covers special cases relating to goods received in lots, time-bound payments to suppliers, and matching-related constraints.

Core Conditions

Recipient must hold a valid invoice or debit note issued under Section 31.
Goods or services must be actually received, including deemed receipt in bill-to-ship-to chains.
Supplier must have discharged the tax liability in GSTR-3B, either through ITC utilisation or cash..
Recipient must have filed GSTR-3B for the relevant period of ITC claim.
ITC is allowed only when the invoice appears in GSTR-2B as mandated by Section 16(2)(aa).
ITC on goods delivered in instalments/lots is available only after receipt of the final lot.

Payment Compliance (180 Days Rule)

Value plus tax must be paid to the supplier within 180 days from invoice date.
Non-payment requires reversal of previously availed ITC along with applicable interest.
ITC can be re-availed immediately once the entire value and tax are paid to the supplier.
The 180-day rule does not apply to RCM supplies, import of services, and Schedule I deemed supplies.
From 01.10.2022, reversal applies only to the unpaid proportion of invoice value.
Interest is payable from the date of availing ITC till the date of reversal, even if payment is made immediately after reversal.

Reversal Procedure

ITC reversal is made in GSTR-3B Table 4(B)(2) – “Reversal of ITC – Others”.
Interest relating to such reversal is paid through GSTR-3B Table 5.1 for the same tax period.
Re-availed credit is taken in GSTR-3B Table 4(A)(5) when the payment is made.
No separate form or DRC required; reversal and re-availment both done through GSTR-3B.
Rule 37 governs the reporting and proportionate reversal mechanism.

Section 16(2)(aa) – Invoice Must Appear in GSTR-2B

(Inserted by Finance Act 2021; effective 01.01.2022)

This clause strengthens invoice matching. ITC can be availed only when details of the supplier’s invoice or debit note are furnished by the supplier in GSTR-1/ IFF, and such details appear in the recipient’s GSTR-2B.

Matching Requirements

ITC allowed only if the supplier uploads the invoice in GSTR-1/IFF.
Invoice must reflect in recipient’s GSTR-2B, which is the final monthly ITC statement.
No provisional credit; ITC is strictly based on GSTR-2B entries.
Late GSTR-1 filing shifts the credit to the next GSTR-2B month, not retroactively.

Section 16(2)(ba) – Supplier’s GSTR-3B Filing Requirement

(Effective from 01.10.2022)

This clause strengthens the dependency of ITC on supplier compliance. Even if an invoice appears in GSTR-2B through GSTR-1 filing, ITC cannot be retained unless the supplier files GSTR-3B for the corresponding period. This ensures that ITC flows only when tax liability is actually discharged.

Supplier Compliance Conditions

ITC is allowed only when the supplier has filed GSTR-3B for the relevant tax period.
ITC must be reversed temporarily under Rule 37A if the supplier fails to file GSTR-3B.
Reversed ITC may be reclaimed once the supplier completes GSTR-3B filing.
This prevents ITC from being taken on unpaid or mismatched tax liabilities.

Section 16(3) – Restriction Where Depreciation Is Claimed

This subsection prevents dual benefit between GST and income tax. If the tax component of capital goods is capitalised and depreciation is claimed on that tax portion, ITC cannot be availed. Taxpayers must choose either ITC under GST or depreciation benefit under the Income Tax Act.

Depreciation-Based Restrictions

ITC is not allowed when depreciation is claimed on the GST component of capital goods.
Applies only to capital goods, not to input services or regular revenue expenditure.
Even partial depreciation on the tax portion leads to complete ITC ineligibility.
Ensures avoidance of double tax benefit across GST and income-tax laws.

Section 16(4) – Time Limit for Taking ITC

Section 16(4) imposes a strict deadline for claiming ITC relating to invoices or debit notes of a financial year. This provision ensures annual closure of the ITC cycle and prevents delayed or retrospective credit claims. The time limit was revised through the Finance Act, 2022.

Time Restrictions

ITC must be availed on or before 30 November following the end of the financial year.
Example: FY 2023-24 invoices → last eligible GSTR-3B is October 2024 GSTR-3B (filed by 30 Nov 2024).
Even if GSTR-3B is filed late (after 30 Nov), ITC for that year is permanently lost.
Alternatively, ITC must be taken before filing GSTR-9, whichever is earlier.
The restriction applies invoice-wise, including self-invoices under reverse charge.
Debit notes are governed by their own issue date (post-01.01.2021 amendment).
The deadline is absolute with no provision for condonation or extension.
Time limit under Section 16(4) applies irrespective of supplier compliance or invoice reporting.”

Additional Compliance Requirements (Linked Rules)

GSTR-2B Matching Requirement (Rule 36(4))

ITC can be availed only for invoices auto-populated in GSTR-2B, ensuring full matching.
No provisional ITC is permitted after implementation of Section 16(2)(aa).
Any delay in supplier’s GSTR-1 filing shifts ITC to the subsequent GSTR-2B cycle.
This matching requirement applies to all regular taxpayers from 01.01.2022.

Temporary ITC Reversal for Supplier Default (Rule 37A)

If supplier does not file GSTR-3B by the stipulated time, ITC must be reversed proportionately.
Reversal made under Rule 37A can be reclaimed once the supplier regularises the default.
This ensures alignment between GSTR-1 reporting and actual tax payment.
Rule 37A applies only to invoices appearing in GSTR-2B but not backed by supplier’s GSTR-3B filing.

Illustration

ABC Pvt Ltd purchases raw materials on 10 April 2024. Goods are received on 15 April, and the invoice reflects in April GSTR-2B. Payment is made after 210 days, and the supplier files GSTR-3B one month late.

Outcome

ITC becomes available only when the invoice appears in GSTR-2B.
ITC must be reversed after 180 days due to delayed payment.
Once payment is made, ITC can be re-availed immediately.
Supplier’s delayed GSTR-3B may trigger temporary reversal under Rule 37A.
ITC must be availed before 30 November 2025 based on Section 16(4).