Section 18 – Availability of Credit in Special Circumstances
Section 18 of CGST Act, 2017 – Availability of Credit in Special Circumstances
Updated on: February 2026 (as amended and applicable till date)
Prepared by: Yours Tax Consultant
1. Bare Act Text – Section 18 (Effective Provisions)
Section 18(1):
A person shall be entitled to take credit of input tax in respect of:
- (a) inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the day immediately preceding the date from which he becomes liable to pay tax;
- (b) inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the day immediately preceding the date from which he becomes liable to pay tax under section 9, where he had applied for registration within thirty days from such date;
- (c) inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the day immediately preceding the date from which he becomes liable to pay tax, where he was previously registered under the composition scheme and opts out of the same;
- (d) inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the day immediately preceding the date from which the supply becomes taxable.
Section 18(2):
A registered person shall not be entitled to take input tax credit
in respect of any supply of goods or services or both
after the expiry of one year from the date of issue of tax invoice
relating to such supply.
Section 18(3):
Where a registered person opts to pay tax under section 10
or where the goods or services or both supplied by him become wholly exempt,
he shall pay an amount equal to the credit of input tax
in respect of inputs held in stock and inputs contained in semi-finished or finished goods
and on capital goods,
reduced by such percentage points as may be prescribed.
Section 18(4):
The amount payable under sub-section (3)
shall be paid by debiting the electronic credit ledger or electronic cash ledger
and the balance of input tax credit, if any, lying in the electronic credit ledger
shall lapse.
2. Objective of Section 18
Section 18 ensures neutrality of tax credit when there is a change in the tax status of a person or supply.
It deals with:
- Entry into GST net
- Exit from composition scheme
- Supplies becoming taxable or exempt
- Reversal of ITC on opting composition or exemption
3. ITC on Becoming Liable to Register – Section 18(1)(a) & (b)
When a person becomes liable to register under GST, he is entitled to ITC on:
- Inputs in stock
- Inputs contained in semi-finished goods
- Inputs contained in finished goods
Important condition: Registration application must be made within the prescribed time.
Relevant Rule:
4. ITC on Opting Out of Composition Scheme – Section 18(1)(c)
A person shifting from composition to regular scheme can avail ITC on:
- Inputs in stock
- Semi-finished goods
- Finished goods
- Capital goods (subject to reduction)
Capital goods ITC is allowed after reducing 5% per quarter or part thereof.
5. ITC When Supply Becomes Taxable – Section 18(1)(d)
If a supply was earlier exempt and later becomes taxable, ITC is allowed on stock held immediately before such change.
This provision ensures fairness when exemptions are withdrawn.
6. One-Year Time Limit – Section 18(2)
ITC under Section 18 is not allowed if the invoice date is more than one year old.
This condition applies even if:
- Stock is physically available
- Tax has been paid on purchase
7. Reversal of ITC on Opting Composition or Exemption – Section 18(3)
When a registered person:
- opts for composition scheme, or
- supplies become wholly exempt
He must reverse ITC relating to:
- Inputs in stock
- Semi-finished goods
- Finished goods
- Capital goods (after prescribed reduction)
8. Lapsing of Credit – Section 18(4)
After payment of the amount required under Section 18(3):
- Any remaining balance in electronic credit ledger lapses
- No refund is allowed
This provision is mandatory and automatic.
9. Section 18 Read with Relevant CGST Rules
10. Common Practical Issues
- Incorrect stock declaration
- Missing one-year invoice condition
- Wrong calculation of capital goods reversal
- Delay in filing ITC declaration
11. Related Provisions
- Section 16 – Eligibility for ITC
- Section 17 – Blocked & apportioned ITC
- Section 10 – Composition Scheme
12. Professional Tip
Section 18 benefits are time-sensitive and documentation-heavy. Always prepare stock statements and invoice ageing before opting in or out of any GST scheme.
Disclaimer: This article is prepared based on the CGST Act, CGST Rules, notifications and legal position applicable till date. Future amendments or judicial pronouncements may require revision.
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