“Unlock the nuances of Section 16 of CGST Act 2017 on Input Tax Credit eligibility and conditions. Explore FAQs, conditions, and crucial details for seamless GST compliance.”
What does Section 16 say: Section 16 of CGST ACT 2017 talks about Input Tax Credit mechanism, which allow the Taxpayers to offset the GST Input Tax Credit with the GST Output Tax Liability. This helps in avoiding the cascading effect of taxes and promote seamless flow of credit through the entire supply chain.
FAQ ON INPUT TAX CREDIT
Q.1 What Does Section 16 Say?.
Ans Section 16 deals in Input Tax Credit mechanism, which allow the Taxpayer to adjust the Input Tax Credit against the GST Output Tax Liability.
Q. 2 Conditions to Claim ITC u/s 16 ?.
Ans 1. Recipient in possession of Invoice or Debit note issued by supplier
2. Details of Such Invoice or Debit note have been furnished by supplier in statement of outward supplies and communicated to the recipient.
3. Recipient has received such goods or services or both.
4. Tax Charges on such supply has been paid to the Government
5. Recipient has furnished return u/s 39 of the CGST ACT 2017.
Q. 3 What happens where the Supplier has not filed GSTR-1?.
Ans The ITC shall not be available to the Recipient as such Invoice or Debit note shall not appear in GSTR-2A and GSTR-2B.
Q.4 Whether all the Conditions needs to be Fulfilled to Claim ITC u/s 16?.
Ans Yes, all conditions needs to be fulfilled.
Q.5 Whether Depreciation can be charged on the Tax Component of Capital Goods?.
Ans No.
Extract of Section 16 of CGST Act 2017: Eligibility & Conditions For Taking Input Tax Credit
The reference from the GST Law has been described as below:
(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.
(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 supplier registered under this Act, or such other tax paying documents as may be prescribed;
(b) he has received the goods or services or both. [Explanation.— For the purposes of this clause, it shall be deemed that the registered person has received the goods or, as the case may be, services–– (i) where the goods are delivered by the supplier to a recipient or any other person on the direction of such registered person, whether acting as an agent or otherwise, before or during movement of goods, either by way of transfer of documents of title to goods or otherwise; (ii) where the services are provided by the supplier to any person on the direction of and on account of such registered person;].
(c) subject to the provisions of section 41, 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 admissible in respect of the said supply; and
(d) he has furnished the return under section 39:
Provided that where the goods against an invoice are received in lots or instalments, the registered person shall be entitled to take credit upon receipt of the last lot or instalment:
Provided further that where a recipient fails to pay to the supplier of goods or services or both, other than the supplies on which tax is payable on reverse charge basis, the amount towards the value of supply along with tax payable thereon within a period of one hundred and eighty days from the date of issue of invoice by the supplier, an amount equal to the input tax credit availed by the recipient shall be added to his output tax liability, along with interest thereon, in such manner as may be prescribed:
Provided also that the recipient shall be entitled to avail of the credit of input tax on payment made by him of the amount towards the value of supply of goods or services or both along with tax payable thereon.
(3) Where the registered person has claimed depreciation on the tax component of the cost of capital goods and plant and machinery under the provisions of the Income tax Act, 1961, the input tax credit on the said tax component shall not be allowed.
(4) A registered person shall not be entitled to take input tax credit in respect of any invoice or debit note for supply of goods or services or both after the due date of furnishing of the return under section 39 for the month of September following the end of financial year to which such invoice or invoice relating to such debit note pertains or furnishing of the relevant annual return, whichever is earlier.
[Provided that the registered person shall be entitled to take input tax credit after the due date of furnishing of the return under section 39 for the month of September, 2018 till the due date of furnishing of the return under the said section for the month of March, 2019 in respect of any invoice or invoice relating to such debit note for supply of goods or services or both made during the financial year 2017-18, the details of which have been uploaded by the supplier under sub-section (1) of section 37 till the due date for furnishing the details under sub-section (1) of said section for the month of March.
The Government through amendment in finance act 2021 has introduced sec 16(2)(AA) of CGST ACT 2017 which states that the details in invoice or debit note referred in clause (a) has been furnished by the supplier in the statement of outward supplies and such details have been communicated to the recipient of such invoice or debit note in a manner prescribed under section 37.
There is one more condition regarding entitlement of Input Tax Credit is that the ITC can be claimed when it appears in GSTR-2A and GSTR-2B which is possible only when GSTR-1 has been filed by the Outward Supplier on the respective due dates.
So we have examined the GST Law and now let us understand through some questions and answer.
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Disclaimer: The above said article is author view point only, please refer the respective sections , rules framed under GST.
Author Bio
My SOP will start during October 2025 and i have purchased machinery, jigs & molds during April 2024. Whether the GST credit is eligible?
IS ITC eligible if state of Supplier is different from state of recipient and the goods are installed at the site of supplier & different state of recipient. The recipient doesn’t have GST registration in state of supplier.. The goods are sold by the supplier and taken back on lease for a rental income to the recipient. Invoices have been received. Returns have been filed and ITC is available on GSTR 2 & 2B.
U/s 16(4) as per amendment made vide Finance Act 2022, after 30th Nov on date of Annual return of relevant period.