Eligibility and conditions for taking input tax credit

As per Section 16(1) of the CGST Act, 2017, Every person who have GST Registration shall be entitled to take credit of tax paid on inward supplies of goods and/or services  which are used/ intended to be used in the course or furtherance of business,  if the all 4 conditions are fulfilled as below:





He has valid tax invoice/ debit note/ prescribed tax paying document

a)      ITC can be availed if he is in possession of Invoice /debit note/prescribed tax paying documents. issued by a supplier registered under this Act. Under Rule 36(1) of CGST Rules following tax paying documents has been prescribed

i)          Invoice issued by a supplier of goods and/or services

ii)         Invoice issued by recipient (receiving goods and/or services from unregistered supplier) along with proof of payment of tax (in case of reverse charge)

iii)       A debit note issued by supplier

iv)       Bill of entry or similar document prescribed under Customs Act

v)         Revised invoice

vi)       Document issued by Input Service Distributor


b)      Input tax credit shall be availed by a registered person only if the said documents are complete in all respects i.e. The said document must contain all the particulars prescribed / specified in Rule 46 of Central Goods and Service Tax Rules, 2017 relating to a Tax Invoice, viz-

·       Amount of Tax charged

·       Description of goods or services

·       Total Value of supply of goods or services

·       GSTIN of the supplier and recipient

·       Place of supply in case of inter-state supply


He has received goods and/ or services


The person taking the ITC must have received the goods and / or services.

Deemed receipt of goods: –

In case of “bill to-ship to” transactions, by which the registered person instructs his supplier to ship the goods to another person on his behalf, the date of receipt of goods by such another person shall be deemed to be the date of receipt of goods by the said registered person.

Eg. A is a trader who places an order on B for a consignment of soda ash. A receives a buying order from C for the same quantity of soda ash. A instructs B to deliver the goods to C, and in turn he raises an invoice on C. Though the goods are not physically received at the premises of A, the condition of section 16(2)(b) is satisfied, and A is entitled to ITC on the consignment.


Tax on such supply has been paid either in cash or Utilisation of ITC

The supplier has actually paid to the credit of appropriate Government the tax amount on the supply made by him. The taxpayer can make the payment of such liability either by using the balance available in the credit ledger or cash ledger. The payment is required to be made by 20th of following month. It means supplier will give the credit to recipient only when tax paid to the Govt.


He has furnished the return u/s 39 (i.e. GSTR-3B)

The recipient shall furnish the return under section 39. (i.e. GSTR- 3B)




Goods received in lots: ITC available only on receipt of last lot  [First proviso to section 16(2)]

In case the goods covered under an invoice are not received in a single consignment but are received in lots or instalments, ITC can be taken only upon receipt of the last lot or instalment.

Example: – M/s C Ltd Chennai procured goods 10,000 Kgs @ ` 100 per Kg. From M/s D Ltd of Delhi. These goods came to M/s C Ltd of Chennai in the following manner:

Date of dispatch

No. Kgs dispatched

Date of receipt

Normal loss in transit kgs

Abnormal loss in transit Kgs

No. Kgs received

10th Oct


15th Nov




2nd Nov


20th Nov




3rd Dec


1st Jan




Invoice shows 10,000 Kgs. and GST @18%.

You are required to answer:

(a) M/s C Ltd can avail the proportionate credit on 15th Nov and 20th Nov.

(b) M/s C Ltd is eligible for input tax credit if so when.

(c) How much credit is allowed to M/s C Ltd.


(a) M/s C Ltd. cannot take proportionate credit on the quantity received on 15th Nov and 20th Nov.

(b) M/s C Ltd is eligible to avail the input tax credit on 1st Jan.

(c) Input tax credit allowed = ` 1,79,640/- [(10,000 Kgs x ` 100) x 18% x 9980 kgs/10,000 kgs.]


(i)                  Goods received in lots ITC available only on receipt of last lot/installment [1st proviso to Sec 16(2)]

(ii)                Entire input tax credit is allowed in case of transit loss (i.e. normal loss). Whereas input tax credit is not allowed to the extent of transit loss (i.e. abnormal loss).


If depreciation claimed on tax component of cost of capital goods, ITC not allowed [Section 16(3)]

If the person taking the ITC on capital goods like plant and machinery has claimed depreciation on the tax component of the cost of the said items under the Income tax Act 1961, the ITC on the said tax component shall not be allowed.

Example: –

M/s Jay Ltd. being a manufacturer purchased machinery worth ` 10,00,000 on which GST Rs. 1,80,000 is paid. The manufacturer has following two options:

Option 1: claim depreciation on the entire value of machinery inclusive of GST (i.e Rs. 11,80,000) by forgoing ITC on capital goods.

Option 2: claim depreciation on the cost of machine (i.e. Rs. 10,00,000) and avail the ITC of GST portion (i.e. 1,80,000)


Reversal of input tax credit if payment not made to supplier within 180 days [Second proviso to section 16(2) read with rule 37 of CGST Rules]


·  In case the payment for an invoice was not made within 180 days of the date of issuance of invoice, then the ITC availed would be added to his output tax liability with interest.

·  Interest will be paid © 18% from the date of availing credit till the date when the amount added to the output tax liability is paid.

·  ITC reversed earlier can be re-availed upon payment of the consideration along with tax, without any time limit.

·  In case part-payment has been made, proportionate credit would be allowed. If (say) 90% amount of supplier’s invoice (including tax amount) is paid, only 10% tax amounts should be reversed.


·   Exceptions: The condition of payment of consideration along with tax within 180 days does not apply in the following situations:

a) Supplies on which tax is payable under RCM

b) Deemed supplies without consideration

c) Additions made to the value of supply on account of supplier’s liability (Incurred by the recipient).

Note: Situations given in points b) & c), the value of supply is deemed to have been paid.


Example 1, You have taken auditing and consultancy services from a Chartered Accountant. The value of the service is Rs.50,000 and the GST charged is Rs.9,000 (@18%). If you do not make the payment of Rs.59,000 within 180 days of the invoice date, the ITC of Rs.9,000 availed by you will be added to your liability, along with the interest due.

Example 2, Due to a quality dispute, PZP Ltd withheld payment on a machine supplied by a vendor till it could be rectified. Over 180 days went by in this dispute. The credit taken by PZP on the invoice got added to the output tax liability of PZP and thus, it had to pay back the credit. Only after the vendor rectified the machine and PZP released the payment and the ITC reversed earlier has been re-availed.



Time limit for availing ITC [Section 16(4) of the CGST Act, 2017]

·  A registered person shall not be entitled to take input tax credit on invoices pertaining to a financial year or debit notes relating to invoices pertaining to a financial year after-

a)       the due date of furnishing of the return under section 39 for the month of September of the subsequent financial year


b)      furnishing of the relevant annual return,

whichever is earlier.


·  Exception: – The time limit u/s 16(4) does not apply to claim for re-availing of credit that had been reversed earlier.


M/s X Ltd. purchased input for Rs. 2,00,000 vide Tax Invoice No. 12 dated 1st December 2017. M/s X Ltd. has submitted annual return for the financial year 2017-18 on 15th September 2018 and return for September 2018 has been filed 19th Oct 2018. Find the time limit within which input tax credit can be availed on input by X Ltd.

M/s X Ltd. wants to take input tax credit on such input on 30th September 2018, advise.


Time limit to avail the credit is earlier of the following:

(a)    19th October 2018


(b)    15th September 2018

Therefore, M/s X Ltd has to avail the input tax credit on or before 15th September 2018



M/s X Ltd. delivered a machine to M/s Y Ltd. in January 2018 under Invoice No. 180 dated 21st January for Rs. 5,00,000 plus GST, and undertook trial runs and calibration of the same machine as per the requirements of M/s Y Ltd. The amount chargeable for the past delivery activities were covered in a debit note raised in May 2018 for Rs. 1,25,000 plus GST. M/s Y Ltd did not file its annual return till October 2018.

Find the time limit u/s 16(4) of the CGST Act, 2017 within which input tax credit can be availed by M/s Y Ltd.


Time limit to avail the ITC on machine (vide Invoice No. 180 dt. 21.01.2018) is 30th September 2018.

Time limit to avail the ITC on debit note is also 30th September 2018.

Note: though the debit note was received in the next financial year (2018-19), it relates to an invoice received in the financial year ending 31st March 2018 (i.e. 2017-18).

Therefore, the time limit for taking ITC available on Rs. 5,00,000 as well as on Rs. 1,25,000 is 30th September 2018; earlier of the date of filing the annual return for 2017-18 or the due date for filing return for September 2018.