GST Section 16 Explained: Input Tax Credit (ITC) Eligibility & Conditions

Section 16 of the CGST Act, 2017 outlines the eligibility and conditions for availing Input Tax Credit (ITC) under GST, applicable to all registered taxpayers. It mandates possession of valid tax documents, actual receipt of goods or services, supplier compliance through GSTR-1, and timely return filing.

ITC is disallowed if tax is unpaid to the government or if payment to the supplier is delayed beyond 180 days. The section also sets strict time limits for claiming ITC, with specific relaxations for past financial years and scenarios involving revoked registrations. This summary provides a clear, reliable understanding of the legal provisions governing ITC claims.

GST Section 16: Eligibility and Conditions for Availing Input Tax Credit (ITC)

Understanding the eligibility and conditions for claiming Input Tax Credit (ITC) is crucial for every registered taxpayer under the GST regime. Section 16 of the Central Goods and Services Tax (CGST) Act, 2017, lays down the fundamental principles regarding ITC. In this article, AUBSP explains each sub-section in detail, providing key highlights, amendments, and compliance guidelines in a reader-friendly format.

Section 16(1): Basic Eligibility to Claim ITC

Every registered person is entitled to claim ITC on goods or services received for business purposes. However, this entitlement is subject to prescribed conditions and must follow procedures outlined under Section 49.

👉 The eligible ITC will be credited to the electronic credit ledger of the registered person.

Note from AUBSP: Only supplies used in the course or furtherance of business are eligible. Personal or exempted-use supplies do not qualify.

Section 16(2): Mandatory Conditions to Avail ITC

Even if you’re registered, ITC is not automatically available. The following four key conditions must be satisfied:

✅ (a) Possession of Valid Documents

You must hold:

• A tax invoice or debit note issued by a registered supplier, or
• Any other prescribed tax-paying documents.

✅ (aa) Invoice Must Be Reported by Supplier

From 1st January 2022, as per the Finance Act 2021:

• The invoice details must be furnished by the supplier in their GSTR-1, and
• These details must reflect in the recipient’s GSTR-2B.

✅ (b) Receipt of Goods or Services

You must have actually received the goods or services. This includes deemed receipt in cases such as:

• Delivery to a third party on your behalf (like agents).
• Services provided to another person on your instructions.

✅ (ba) ITC Not Restricted Under Section 38

From 1st October 2022, ITC must not be restricted under the new auto-generated ITC statement (GSTR-2B) as per Section 38.

✅ (c) Tax Must Be Paid to Government

The supplier must have paid the tax on your supply to the government—either in cash or through utilised ITC.

✅ (d) Filing of Returns

You must have furnished your GSTR-3B under Section 39.

Special Provisions Under Section 16(2)

🚚 Goods Received in Installments

If goods are received in parts, you can claim ITC only upon receipt of the last installment.

💸 Non-Payment to Supplier within 180 Days

If you fail to pay the value + tax within 180 days:

• You must reverse the ITC and pay interest under Section 50.
• However, once payment is made, you can reclaim the ITC.

AUBSP Insight: Regular reconciliation of supplier invoices and timely payments are essential to avoid ITC reversals and penalties.

Section 16(3): Depreciation Restriction

If you claim depreciation on the tax component of capital goods under the Income Tax Act, ITC on such tax amount shall not be allowed.

Section 16(4): Time Limit to Claim ITC

A registered person cannot claim ITC for an invoice or debit note:

• After 30th November following the end of the relevant financial year, or
• After filing the annual return,
  Whichever is earlier.

Special Provision for FY 2017–18 (via Order No. 02/2018)

Section 16(5): Extended Timeline for Specific Years

As per the Finance (No. 2) Act, 2024, ITC is allowed for invoices of:

This retrospective benefit helps taxpayers regularize older ITC claims.

Section 16(6): Revoked GST Registration and ITC

If your GST registration is cancelled and later revoked, and your ITC was not time-barred on the cancellation date, you may reclaim it as follows:

Amendment Timeline Table

Conclusion by AUBSP

Section 16 of the CGST Act is the backbone of Input Tax Credit eligibility under GST. Understanding these provisions ensures timely and lawful availing of ITC, reduces compliance risks, and optimizes working capital.

Make sure to stay updated with notifications, maintain documentation, and monitor your vendor compliance. For more authentic updates, legal interpretations, and GST insights, always rely on trusted sources like AUBSP.com

FAQs on Section 16 of the CGST Act

What is Section 16 of the CGST Act?
Section 16 outlines the eligibility and conditions under which a registered person can claim Input Tax Credit (ITC) on goods or services used in business.

Who is eligible to claim ITC under Section 16?
Any person registered under GST is eligible, provided the goods or services are used for business and all specified conditions are met.

Can ITC be claimed on personal purchases?
No, ITC can only be claimed on goods or services used in the course or furtherance of business.

Is possession of a tax invoice mandatory to claim ITC?
Yes, you must possess a valid tax invoice or debit note issued by a registered supplier.

Is it mandatory for the supplier to report the invoice in their GSTR-1?
Yes, from 1st January 2022, the invoice must be reported by the supplier in their GSTR-1 and reflected in the recipient’s GSTR-2B.

What if the invoice is not appearing in GSTR-2B?
ITC cannot be availed if the invoice is not reflected in GSTR-2B or is restricted under Section 38.

When is ITC deemed to be received?
ITC is deemed received if goods are delivered to another person on your instruction or services are provided on your behalf.

What happens if I don’t pay the supplier within 180 days?
You must reverse the ITC and pay interest. ITC can be reclaimed once payment is made.

Can ITC be claimed if tax is not paid by the supplier?
No, ITC is allowed only if the tax on such supply has been actually paid to the government.

Is it necessary to file returns for claiming ITC?
Yes, you must file the return under Section 39 (GSTR-3B) to avail ITC.

Can ITC be claimed on goods received in parts or instalments?
Yes, but only after the last lot or instalment of goods is received.

Can I claim ITC if I’ve claimed depreciation on tax component?
No, ITC is not allowed if depreciation is claimed on the tax portion of capital goods.

What is the time limit to claim ITC on an invoice?
You must claim ITC by 30th November of the following financial year or before filing the annual return, whichever is earlier.

Is the 30th November deadline applicable to all years?
No, special provisions apply for FYs 2017–18 to 2020–21, allowing claims up to 30th November 2021.

Can ITC be claimed after revocation of cancelled GST registration?
Yes, subject to timelines. ITC can be claimed for eligible invoices through returns filed within the permitted period after revocation.

What if my GST registration was cancelled and later restored?
You may claim ITC on eligible invoices if the return is filed within 30 days of the revocation order, or by the 30th November deadline.

Can ITC be claimed under reverse charge mechanism (RCM)?
Yes, but the recipient must pay the tax first under RCM and then claim ITC.

Can ITC be transferred to another GSTIN?
No, ITC is not transferable between different GST registrations unless via a proper merger or business transfer.

What documents are required to support ITC claims?
Valid tax invoice, debit note, receipt of goods/services, payment proof, and compliance reports like GSTR-2B and GSTR-3B.

How does GSTR-2B impact ITC eligibility?
GSTR-2B is an auto-drafted ITC statement. Only ITC appearing and not restricted in GSTR-2B is eligible for claim.

Can I claim ITC if I forget to include an invoice in my return?
Yes, but only within the time limit (30th November of the next FY or annual return filing, whichever is earlier).

Can ITC be claimed on blocked credits under Section 17(5)?
No, Section 17(5) restricts ITC on certain goods/services like motor vehicles, personal use items, etc.

What is the consequence of wrongly availing ITC?
Wrongful ITC leads to reversal, interest, and possible penalty under Section 50 and Section 73 or 74 of the CGST Act.

Can I avail ITC for purchases made before registration?
No, ITC is available only from the date of registration unless transitional provisions apply.

Is ITC available on input services for construction of immovable property?
No, ITC is not available for works contracts and construction services unless used for further supply of such services.