Input tax credit is what keeps GST a tax on value added rather than a tax on every sale. But credit is a privilege with conditions. Section 16 of the CGST Act sets them out, and the GST authorities test every one of them in audits. For the CA Inter exam, section 16 shows up in descriptive questions and in almost every computation of net GST payable.
Who can claim, and for what
Under section 16(1), a registered person can take credit of tax charged on goods or services used, or intended to be used, in the course or furtherance of business. The credit goes to the electronic credit ledger. Blocked credits under section 17(5) are a separate test that applies even when all the section 16 conditions are met.
The six conditions of section 16(2)
| Clause | Condition |
|---|---|
| (a) | Possession of a tax invoice, debit note or other prescribed tax-paying document |
| (aa) | The supplier has furnished the invoice details in GSTR-1 (or GSTR-1A, or IFF) and they are communicated to the recipient in GSTR-2B |
| (ba) | The credit is not restricted in the details communicated under section 38 |
| (b) | The goods or services have been received. In bill-to-ship-to, goods delivered to a third person on the recipient’s direction count as received |
| (c) | The tax charged has actually been paid to the Government, in cash or through credit |
| (d) | The recipient has furnished its return under section 39 (GSTR-3B) |
Where goods are received in lots or instalments against one invoice, credit is available only when the last lot is received.
The 180-day payment rule
If the recipient does not pay the supplier the value plus tax within 180 days from the invoice date, it must add back the credit (proportionately, for part payment) with interest. When it later pays, it can take the credit again, and the time limit in section 16(4) does not apply to such re-availment.
The rule does not apply to tax paid under reverse charge, deemed supplies made without consideration, and amounts added to value because the recipient paid a liability of the supplier.
From practice
Many finance teams run a creditors’ ageing report every month for exactly this reason: any vendor invoice crossing 180 days unpaid triggers a credit reversal in that month’s GSTR-3B. In an ICAI example, a buyer withheld payment for a machine during a quality dispute for more than 180 days. It had to reverse the credit with interest, and could take it again only after it released the payment.
Depreciation and the time limit
- Section 16(3): if depreciation is claimed under the Income-tax Act on the tax component of capital goods, no credit is allowed on that tax. You can have one benefit or the other, not both.
- Section 16(4): credit for invoices or debit notes of a financial year can be taken up to 30 November of the following year or the date of filing the annual return, whichever is earlier. For a debit note, the year of the debit note counts, not the year of the original invoice.
Rule 37A adds one more check: if the supplier has not filed its GSTR-3B for the period by 30 September of the following year, the recipient must reverse the credit by 30 November. It can re-avail the credit once the supplier files.
Quick check
Why
Under section 16(4), the last date is 30 November of the following financial year or the date of filing the annual return, whichever is earlier. Here the annual return was filed on 15 October 2026, which is earlier.
Quick check
Why
The second proviso to section 16(2) requires reversal with interest if payment is not made within 180 days. The credit can be taken again when payment is made, without any time limit.
Exam lens
For a credit question, test the purchase in this order: (1) used for business; (2) blocked under section 17(5)?; (3) the section 16(2) conditions; (4) the time limit. State each test in one line.
Flashcards · 6 cards
Section 16 in 6 cards
Try to answer first, then tap the card to check.
Frequently asked questions
Can I claim credit if the invoice is not in my GSTR-2B?
No. Section 16(2)(aa) requires the supplier to have furnished the invoice details and for them to be communicated to you in GSTR-2B.
What happens if I pay the supplier after 180 days?
You reverse the credit with interest after 180 days and take it again when you pay. The section 16(4) time limit does not apply to re-availing it.
What is the last date to claim credit for a financial year?
30 November of the following financial year, or the date you file the annual return for that year, whichever is earlier.
Related reading
- Blocked credits under section 17(5): full list
- Reverse charge under GST: services under section 9(3)
- Value of supply under section 15
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CA Inter GST (Paper 3, Section B) by CA Vivek Kumar: short lectures in Hinglish, a concept-check MCQ after every concept, study notes, revision notes and past-paper practice for every chapter.
Note
Based on Chapter 8 (Input Tax Credit) of the ICAI BoS Study Material, Intermediate Paper 3 Section B, for May 2027, September 2027 and January 2028 (law as amended up to 30.04.2026). Last reviewed 15 October 2026.