Eligibility and Conditions for Input Tax Credit
Section 16 is the gateway to GST's defining feature: it lays down who can take input tax credit, the four (now effectively six) conditions for availing it, the 180-day payment rule and the time limit for claiming credit.
The provision, in plain terms
Every registered person may take credit of input tax on supplies used or intended to be used in the course or furtherance of business. Conditions: possession of a tax invoice or debit note; the detail must be furnished by the supplier and communicated to the recipient (GSTR-2B reflection, section 16(2)(aa)); receipt of the goods or services; the credit must not be restricted under section 38; tax must actually be paid to the government by the supplier; and the recipient must file the return. If the recipient fails to pay the supplier within 180 days, credit availed must be reversed with interest (re-creditable on payment). Time limit: credit for an FY cannot be availed after 30 November of the following year or the annual return date, whichever is earlier.
Points worth memorising
- Core test: inward supply used in the course or furtherance of business.
- Documentary + matching conditions: valid invoice, supplier reporting (GSTR-2B), actual receipt, supplier tax payment, recipient return filing.
- 180-day rule: non-payment to supplier within 180 days → reversal with interest; credit restored on payment.
- Time limit: 30 November of the next FY or annual return, whichever is earlier.
- Goods in lots → credit on last lot; depreciation claimed on the tax component of capital goods bars credit.
How the exam tests it
The single most examined GST section: CA Intermediate tests conditions and the 180-day rule; Final layers blocked credits (17(5)), apportionment (17(2)) and rule 36–43 mechanics on top. Expect it in every attempt.
Tested at: intermediate · final
Related sections
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Talk to usWhat is the time limit to claim ITC for a financial year?
The earlier of 30 November following the end of the financial year or the date of filing the annual return — invoices missed beyond that window lose credit permanently.
What happens if I don't pay my supplier within 180 days?
The credit availed must be added back to output liability with interest. When payment is eventually made, the credit can be re-availed without any time limit.