Section 16 of CGST Act: Eligibility and Conditions for Taking Input Tax Credit
Updated: 15 September 2026 | Central Goods and Services Tax Act, 2017
Section 16 of the Central Goods and Services Tax Act, 2017 is the principal provision governing eligibility for input tax credit (ITC). It specifies who can claim ITC, the documents and statutory conditions required for the claim, the time limit for availing credit and special relief provided in certain cases.
In brief: A registered person can generally claim eligible input tax charged on goods or services used or intended to be used in the course or furtherance of business, subject to Section 16, the CGST Rules and other restrictions under the GST law.
What is Section 16 of the CGST Act?
Section 16 falls under Chapter V of the CGST Act dealing with Input Tax Credit. It lays down the basic statutory entitlement to ITC and the conditions that must be fulfilled before a registered person can avail credit.
The provision should be read together with the relevant CGST Rules and other ITC provisions, particularly Section 17 on apportionment and blocked credits, Section 18 on ITC in special circumstances, Section 41 and the return provisions under Section 39.
Section 16(1): Basic Eligibility for Input Tax Credit
Under Section 16(1), every registered person is entitled, subject to the prescribed conditions and restrictions and in the manner specified in Section 49, to take credit of input tax charged on a supply of goods or services or both which are used or intended to be used in the course or furtherance of business.
The eligible amount is credited to the electronic credit ledger of the registered person.
Therefore, registration and a business nexus are fundamental requirements. The credit must also satisfy the remaining conditions contained in Section 16 and the restrictions elsewhere in the GST law.
Section 16(2): Conditions for Claiming ITC
Section 16(2) overrides the general entitlement in Section 16(1). A registered person cannot claim ITC merely because tax has been charged on a purchase. The statutory conditions for the credit must also be satisfied.
1. Possession of prescribed tax document
The recipient must possess a tax invoice or debit note issued by a supplier registered under the CGST Act, or another prescribed tax-paying document. Relevant documents may include an eligible tax invoice, debit note or bill of entry, as applicable under the CGST Rules.
2. Supplier must furnish invoice or debit note details
Section 16(2)(aa) requires the details of the invoice or debit note to have been furnished by the supplier in the statement of outward supplies and such details to have been communicated to the recipient in the manner specified under Section 37.
3. Receipt of goods or services
The registered person must have received the goods or services or both. Section 16 also contains deeming provisions covering specified situations where goods or services are supplied to another person on the registered person's direction.
Where goods covered by an invoice are received in lots or instalments, ITC is available upon receipt of the last lot or instalment.
4. ITC must not be restricted under Section 38
The credit communicated to the registered person must not be restricted in the circumstances covered by the statutory ITC communication framework. Taxpayers should therefore reconcile purchase records with the ITC information made available through the GST system.
5. Tax must have been paid to the Government
Subject to the statutory provisions, the tax charged in respect of the supply must have actually been paid to the Government, either in cash or through utilisation of admissible input tax credit.
6. Return under Section 39 must be furnished
The recipient must have furnished the return required under Section 39 of the CGST Act. For regular taxpayers, eligible ITC is generally claimed through the applicable GSTR-3B return.
Important: Appearance of an invoice in GSTR-2B does not by itself establish that every legal condition for ITC has been satisfied. Eligibility must still be examined under Sections 16 and 17 and the applicable CGST Rules.
Payment to Supplier Within 180 Days
Section 16 contains an important condition where a recipient who has availed ITC fails to pay the supplier the value of the supply along with the tax payable thereon within 180 days from the date of issue of the invoice. The rule does not apply in the same manner to supplies on which tax is payable under reverse charge.
Where the statutory payment condition is not fulfilled, the recipient is required to pay or reverse the amount attributable to the ITC in the prescribed manner together with applicable interest. The credit may be re-availed after payment of the value of supply and the tax payable thereon, subject to the applicable provisions.
Section 16(3): Depreciation and Input Tax Credit
A registered person cannot obtain both depreciation under the Income-tax Act, 1961 on the GST component of the cost of capital goods or plant and machinery and input tax credit on that same tax component.
Practical rule: If ITC on the GST component of eligible capital goods is to be claimed, depreciation should not also be claimed on that GST component for income-tax purposes.
Section 16(4): Time Limit for Taking Input Tax Credit
The present general time limit under Section 16(4) is an important compliance requirement.
A registered person is generally not entitled to take ITC in respect of an invoice or debit note after 30 November following the end of the financial year to which the invoice or debit note pertains, or after furnishing the relevant annual return, whichever is earlier.
Businesses should therefore identify missing invoices and reconcile purchase records, GSTR-2B and ITC claims well before the statutory cut-off instead of waiting until the end of November.
Sections 16(5) and 16(6): Special ITC Relief
Sub-sections (5) and (6) were inserted into Section 16 with retrospective effect from 1 July 2017 to provide relief from the Section 16(4) time restriction in specified circumstances.
Section 16(5): ITC for Financial Years 2017-18 to 2020-21
For invoices or debit notes relating to financial years 2017-18, 2018-19, 2019-20 and 2020-21, the legislation provides a special relaxation where the registered person took the credit in a return under Section 39 filed up to the prescribed statutory date of 30 November 2021, subject to the terms of Section 16(5).
Section 16(6): ITC Following Revocation of Cancellation
Section 16(6) provides special treatment where a person's GST registration was cancelled and the cancellation was subsequently revoked. Subject to the conditions specified in the provision, ITC that would otherwise be affected by Section 16(4) may be available in returns furnished for the relevant period within the statutory time permitted after revocation.
The Central Board of Indirect Taxes and Customs has issued Circular No. 237/31/2024-GST explaining implementation issues relating to Sections 16(5) and 16(6), including treatment of specified past demands and cases.
GSTR-2B and Input Tax Credit
Form GSTR-2B is an auto-drafted ITC statement generated from information reported through the GST system. It assists recipients in identifying available and potentially ineligible credits and in preparing the ITC portion of GSTR-3B.
However, GSTR-2B is a compliance and reconciliation tool. The taxpayer remains responsible for determining whether the underlying credit satisfies the conditions of the CGST Act and Rules.
| Requirement | Practical check |
|---|---|
| Valid tax document | Verify invoice, debit note, bill of entry or other prescribed document. |
| Supplier reporting | Reconcile supplier-reported invoice details with GST records and GSTR-2B. |
| Receipt | Maintain evidence of receipt of goods or services. |
| Business use | Confirm that the inward supply is used or intended for business. |
| Blocked credit | Check restrictions under Section 17(5) and other applicable provisions. |
| 180-day rule | Track payment of invoice value and tax to the supplier. |
| Time limit | Check the Section 16(4) deadline and any applicable statutory relaxation. |
| Return filing | Ensure the applicable return under Section 39 is furnished. |
Section 16 ITC Compliance Checklist
- Confirm that the claimant is a registered person.
- Establish that the inward supply is for the course or furtherance of business.
- Keep the prescribed tax invoice, debit note or other eligible document.
- Confirm receipt of the goods or services.
- Reconcile invoices with GSTR-2B and supplier-reported information.
- Check whether the credit is restricted or blocked under the CGST Act.
- Comply with the supplier-payment requirement, where applicable.
- Do not claim depreciation on the same GST component where ITC is claimed.
- Observe the Section 16(4) time limit.
- Examine Sections 16(5) and 16(6) where the special statutory relief may apply.
- Maintain documentary evidence supporting the ITC claim.
Related CGST Act Provisions
For a complete understanding of input tax credit, also see Section 17 - Apportionment of credit and blocked credits, Section 18 - Availability of credit in special circumstances, Section 19 - Inputs and capital goods sent for job work, Section 20 - Distribution of credit by Input Service Distributor and Section 21 - Recovery of credit distributed in excess.