Pre-requisites for claiming ITC

Section 16 of CGST Act, 2017

  • Possession of documents prescribed;
  • Received the goods/services;
  • Tax has been paid to the government;
  • Return has been filed on time by recipient

Provided the payment has been made to the supplier of goods or services within 180 days from the date of invoice;

(In case of non-payment, ITC shall be reversed to include in output tax liability along with interest @ 18% from the date of availing the credit till the date of reversal)

The ITC can be claimed by the recipient by due date of filing of return of September month following the relevant financial year or furnishing of annual return whichever is earlier;

ITC not allowed

S.No. Particulars
1 Where the supply is received exclusively for other than business purposes;
2 Inward supplies used partly for non-business purposes then the credit shall be restricted to that extent;
3 Where the supply is received exclusively for effecting exempted supply;
4 Inward supplies used partly for effecting exempt supply then the credit shall be restricted to that extent;
5 Banking company or NBFCs, engaged in supply of services by way of accepting deposits, extending loans shall have the option to reverse the credit @ 50% instead of reversal of proportionate credit with respect to exempted supply;

The restriction will not be applicable on supplies between distinct person having same PAN;

How To Reverse ITC as per Rule 42 of CGST Rules, 2017)

Calculation of reversal of ITC 

S.No. Particulars Amt. (Rs)
1 Total input tax T 1,00,000
2 Supply excl. used for other than business purpose T1 5,000
3 Supply excl. used for effecting exempted supply T2 5,000
4 Blocked credit u/s 17(5) T3 10,000
Balance credit C1 80,000
5 Supply excl. used for taxable supplies incl. zero rated T4 60,000
Common credit C2 20,000
6 Credit attributable to exempt supply D1* 2,000
7 Adhoc reversal D2# 1,000
Eligible ITC C3 17,000


E=Aggregate value of exempt supplies for tax period = 2,00,000

F=Total turnover in the State during the tax period = 20,00,000


Reversal of proportionate credit

  • This is pertinent to note that the reversal has to be done in each tax period;
  • The reversal of ITC has to be compared with the final calculation to be done following the end of relevant financial year. This comparison has to be done by due date of filing of GST return for the month of September or date of filing of Annual return, whichever is earlier;
  • Any short reversal would be subject to interest @ 18% p.a.

Blocked Credit under section 17(5)

S.No. Nature of Supply
1 Purchase of Motor vehicle
2 Repair and maintenance of Motor vehicle
3 Insurance of Motor vehicle
4 Food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery
5 On membership of a club, health and fitness centre
6 On rent-a-cab, life insurance and health insurance
7 On travel benefits extended to employees on vacation
8 On works contract services when supplied for construction of an immovable property which is to be capitalized
9 On goods / services received for construction of an immovable property on own account
10 On goods or services or both used for personal consumption
11 On goods lost, stolen, destroyed
12 On goods disposed of by way of gift and free samples

Dowenload PPT on Reversal of Input tax credit (‘ITC’)

(Authors – CA Neeraj Kumar and CA Deepak Arya, RAPG & Co. Chartered Accountants from Delhi and can be reached at [email protected], 9999836182/9818449179)

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June 2021