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GST · Input tax creditSection 16 ITC eligibility: conditions and worked examples
Input tax credit is the heart of GST – and the biggest source of notices. Section 16 sets six conditions, and missing any one can lead to reversal with interest. Here is each condition explained with practical examples.
Section 16 of the CGST Act allows a registered person to take credit of tax charged on supplies used in the course or furtherance of business. But credit is subject to strict conditions, and the burden of proving eligibility is on the person claiming it.
The conditions
| Condition | Section | Practical test |
|---|---|---|
| 1. Possession of a tax invoice / debit note | 16(2)(a) | Valid invoice with Rule 46 particulars |
| 2. Invoice reflected in GSTR-2B | 16(2)(aa), Rule 36(4) | Supplier filed GSTR-1/IFF |
| 3. Receipt of goods or services | 16(2)(b) | GRN, delivery challan, e-way bill, service records |
| 4. Tax actually paid by supplier to government | 16(2)(c) | Supplier filed GSTR-3B (see Rule 37A) |
| 5. Recipient has filed GSTR-3B | 16(2)(d) | Claim through own return |
| 6. Payment to supplier within 180 days | Second proviso, Rule 37 | Bank payment proof |
| Time limit | 16(4) | By 30 November following the FY, or annual return date if earlier |
Additional rules: - Goods received in lots: ITC on receipt of the last lot. - Capital goods: no ITC on the tax component if depreciation is claimed on it (16(3)). - Bill-to-ship-to: goods delivered to a third party on the recipient's direction count as received.
Worked example 1: the timeline
Example: Nova Traders, a Karol Bagh trader, buys goods for ₹10,00,000 + 18% GST (₹1,80,000) on 15 March 2026. Goods arrive on 18 March. The supplier reports the invoice in his March GSTR-1 (GSTR-2B of March).
| Point | Status |
|---|---|
| Invoice | Yes |
| GSTR-2B (March) | Yes |
| Receipt | 18 March 2026 |
| Claim | In March 2026 GSTR-3B |
| Payment to supplier | Due within 180 days of invoice – by 11 September 2026 |
| Time limit | 30 November 2026 |
If Nova Traders pays the supplier only on 30 October 2026 (after 180 days), it must add ₹1,80,000 to output tax in the GSTR-3B of September 2026 (the period in which 180 days expire), with interest at 18% from the date of availing, and can re-claim it in October 2026 after payment.
Worked example 2: supplier filed late
Example: A supplier issues an invoice on 25 April 2026 but uploads it in GSTR-1 only in July 2026. The invoice appears in Nova Traders's July GSTR-2B. ITC can be claimed only in July 2026 (or later, up to 30 November 2027). Claiming it in April would violate Rule 36(4).
Worked example 3: missing the time limit
Example: An invoice dated 20 January 2026 (FY 2025-26) is found in December 2026, never claimed. The time limit for FY 2025-26 invoices was 30 November 2026 – the ITC is lost permanently (unless one of the special relief provisions applies, which cover specific earlier years and revoked registrations).
Invoice Management System (IMS)
Since October 2024, inward invoices appear in the IMS where the recipient can accept, reject or keep them pending before GSTR-2B is generated. Accepted invoices flow into GSTR-2B. Rejecting a valid invoice means losing credit; accepting an invoice for goods not received means claiming ineligible credit. Review IMS every month before the 14th.
Section 16(2)(c) and genuine buyers
Where the supplier collected tax but did not deposit it, the department often seeks reversal from the buyer. Courts – including the Supreme Court's observations in some matters and several High Courts – have protected genuine buyers who proved receipt and payment, while others upheld reversal. Protect yourself by:
- buying only from active GSTINs with good filing history;
- paying through banks;
- keeping e-way bills, transport receipts and GRNs;
- monitoring Rule 37A reversals (supplier not filing GSTR-3B by 30 September).
Common mistakes
- Claiming ITC on invoices not in GSTR-2B.
- Missing the 180-day payment reversal.
- Claiming after 30 November.
- Claiming ITC on blocked items (see Section 17(5)).
- Accepting all invoices in IMS without checking receipt.
Key takeaway
ITC needs an invoice, GSTR-2B reflection, actual receipt, supplier's tax payment, your return and payment to the supplier within 180 days – all by 30 November following the year. Our GST reconciliation service checks these conditions monthly so credits survive scrutiny.
Official references
Provisions discussed (summaries in our Law Library):
- CGST Act, 2017 – Section 16: Eligibility and conditions for ITC
Official sources to verify the current text, notifications and circulars:
Frequently asked questions
What is the last date to claim ITC for FY 2025-26?
30 November 2026, or the date of filing the annual return for FY 2025-26, whichever is earlier (Section 16(4)).
Can I claim ITC if the invoice is not in GSTR-2B?
No. Under Section 16(2)(aa) and Rule 36(4), ITC can be claimed only on invoices and debit notes reflected in GSTR-2B.
What happens if I do not pay the supplier within 180 days?
The ITC must be reversed (added to output tax) with interest, and can be reclaimed when payment is made.
Can ITC be denied because the supplier did not pay tax?
Section 16(2)(c) requires the tax to have been paid to the government. Courts have given relief to genuine buyers in several cases, but the department does raise demands; keep proof of genuineness and payment.
Can ITC be claimed on an invoice in the name of the proprietor instead of the business?
ITC requires the invoice to bear the recipient's GSTIN. An invoice with the correct GSTIN in the proprietor's name is valid, as the proprietor and business share the GSTIN.
Is ITC allowed on goods received at a branch in another State?
ITC is available to the GSTIN in the State where the goods are received and used; the supplier should bill that State's GSTIN.
Can ITC be claimed on advance payment?
No. ITC requires receipt of goods or services and an invoice; an advance alone does not qualify.
This article is general information on the law as on 10 November 2026, written for educational purposes. It is not professional advice for your case. Section numbers under the Income-tax Act, 2025 should be confirmed with the official section mapping on the Income Tax Department website before use in filings.
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