Section 16 of CGST Act, 2017 – Eligibility and Conditions for Taking Input Tax Credit

Updated on: February 2026 (as amended and applicable till date)
Prepared by: Yours Tax Consultant

1. Bare Act Text – Section 16 (Effective Provisions)

Section 16(1):
Every registered person shall, subject to such conditions and restrictions as may be prescribed and in the manner specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person.

Section 16(2):
Notwithstanding anything contained in this section, no registered person shall be entitled to the credit of any input tax in respect of any supply of goods or services or both to him unless:

(a) he is in possession of a tax invoice or debit note issued by a registered supplier or such other tax paying document as may be prescribed;
(b) he has received the goods or services or both;
(c) the tax charged in respect of such supply has been actually paid to the Government, either in cash or through utilisation of input tax credit;
(d) he has furnished the return under section 39.

First Proviso to Section 16(2):
Where the goods are delivered by the supplier to a recipient or any other person on the direction of such registered person, it shall be deemed that the registered person has received the goods.

Second Proviso to Section 16(2):
Where a registered person fails to pay to the supplier the value of supply along with tax thereon within 180 days from the date of issue of invoice, the amount of ITC availed shall be added to output tax liability along with interest.

Section 16(3):
Where the registered person has claimed depreciation on the tax component of the cost of capital goods under the Income-tax Act, 1961, the input tax credit on the said tax component shall not be allowed.

Section 16(4):
A registered person shall not be entitled to take input tax credit in respect of any invoice or debit note after:

the 30th day of November following the end of the financial year to which such invoice or debit note pertains, or
the date of furnishing of the relevant annual return,

whichever is earlier.

2. Objective of Section 16

Section 16 grants the substantive right to Input Tax Credit (ITC).

However, this right is:

Not absolute
Subject to strict statutory conditions
Closely monitored by the GST system

Failure to satisfy even one condition leads to denial or reversal of ITC.

3. Eligibility for ITC – Section 16(1)

ITC is available only when:

Person is registered
Input is used or intended to be used in course or furtherance of business
Credit is taken as per Section 49

Personal use or non-business use disqualifies ITC.

4. Mandatory Conditions – Section 16(2)

All four conditions are cumulative and mandatory.

(a) Possession of Valid Tax Invoice

Prescribed under:

Rule 36 – Documentary requirements for ITC

(b) Receipt of Goods or Services

Includes deemed receipt in bill-to ship-to transactions.

(c) Tax Paid to Government

This condition has led to major litigation. However, courts have increasingly held that ITC cannot be denied to bona fide buyers for supplier default.

(d) Filing of Return under Section 39

ITC is linked to filing of GSTR-3B.

5. 180-Day Payment Rule – Second Proviso to Section 16(2)

If payment to supplier is not made within 180 days:

ITC must be reversed
Interest is payable

Once payment is made later, ITC can be re-availed.

Relevant Rule:

Rule 37 – Reversal of ITC for non-payment

6. Depreciation Bar – Section 16(3)

If depreciation under Income-tax Act is claimed on:

GST portion of capital goods

Then:

ITC on such GST is not allowed

This provision avoids double benefit.

7. Time Limit for Availing ITC – Section 16(4)

ITC must be availed by the earlier of:

30th November following the end of financial year, or
Date of filing annual return

This time limit is:

Mandatory
Not extendable

Courts have consistently upheld this limitation.

8. Section 16 Read with Relevant CGST Rules

9. Common ITC Disputes

Mismatch between GSTR-2B and books
Supplier non-payment of tax
Delayed return filing
Ineligible ITC under Section 17

10. Related Provisions

11. Professional Tip

Section 16 conditions are cumulative. Even one failure can result in ITC denial with interest and penalty. Maintain strict invoice, payment and return discipline.

Disclaimer: This article is prepared on the basis of CGST Act, CGST Rules, notifications and legal position applicable till date. Future amendments or judicial pronouncements may require revision.

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Section 16 – Eligibility and Conditions for Taking Input Tax Credit