Input Tax Credit under GST: Sections 16 to 21 and Rules 36 to 45 Explained

This guide explains the law on input tax credit (ITC) under Sections 16 to 21 and 41 of the CGST Act, 2017 and Rules 36 to 45 of the CGST Rules, 2017: when credit is available, the conditions and time limits, blocked credits, reversals and special cases.

Law stated as on November 2026, including amendments made by Notification No. 05/2026-Central Tax and the Finance Act, 2026 provisions in force from 1 November 2026. Section numbers refer to the CGST Act, 2017 and rule numbers to the CGST Rules, 2017; the SGST/UTGST Acts contain identical provisions.

🗣️ Saral bhasha mein samjhein

• ITC tabhi milega jab bill ho, maal ya service mili ho, invoice GSTR-2B mein dikh raha ho, aur supplier ne tax jama kiya ho.
• Supplier ko 180 din mein payment nahi kiya, toh ITC reverse karni padegi. Payment karne par wapas le sakte hain.
• ITC lene ki aakhri date: saal khatam hone ke baad 30 November, ya annual return, jo pehle ho.
• Car, khana-peena, club, ghar ya building banane jaise kharche blocked hain (Section 17(5)).
• 1 Nov 2026 se baad mein diye gaye discount par credit note aaye, toh buyer ko utna ITC reverse karna hoga.

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1. Key Definitions

• Input tax (Section 2(62)): CGST, SGST, IGST or UTGST charged on supplies to a registered person, including IGST on imports and tax paid under reverse charge, but not composition tax.
• Inputs, input services and capital goods (Sections 2(59), 2(60), 2(19)): goods (other than capital goods), services, and goods capitalised in the books, used or intended to be used in the course or furtherance of business.

2. Eligibility and Conditions: Section 16

A registered person may take credit of input tax on supplies used or intended to be used in the course or furtherance of business (Section 16(1)). Credit is not available for personal use. Under Section 16(2), all of the following must be met:

1. Possession of a tax invoice, debit note or other prescribed document (Rule 36).
2. The supplier has furnished the invoice in GSTR-1/IFF and it is communicated to the recipient in GSTR-2B (Section 16(2)(aa)).
3. The goods or services have been received; delivery to a third person on the recipient's direction counts as receipt.
4. Credit is not restricted under Section 38 (i.e. it appears as available in GSTR-2B).
5. The tax charged has been actually paid to the Government by the supplier (Section 16(2)(c)).
6. The recipient has furnished his return under Section 39.

180-day rule: if the recipient does not pay the supplier the value and tax within 180 days of the invoice, the credit must be reversed with interest; it can be re-availed on payment (second proviso to Section 16(2), Rule 37). Supplies on reverse charge and deemed supplies without consideration are excluded.

Supplier non-payment (Rule 37A): where the supplier has not filed GSTR-3B for the period by 30 September of the next year, the recipient must reverse the credit by 30 November and may re-avail it once the supplier files and pays.

3. Time Limits: Sections 16(3) to 16(6)

• Section 16(3): no ITC on the tax component of capital goods if depreciation has been claimed on it under the Income-tax Act.
• Section 16(4): ITC on an invoice or debit note cannot be taken after 30 November following the end of the financial year, or the date of filing the annual return, whichever is earlier. The limit applies to self-invoices on import of services, but not to bills of entry for imported goods.
• Section 16(5): for FY 2017-18 to 2020-21, ITC taken in any return filed up to 30 November 2021 is protected.
• Section 16(6): where registration was cancelled and later revoked, ITC can be taken in the return filed within 30 days of the revocation order, subject to conditions.

4. Apportionment and Blocked Credit: Section 17

Where inputs are used partly for business and partly for other purposes, or partly for taxable and partly for exempt supplies, credit is apportioned under Rules 42 and 43 and the ineligible share reversed in GSTR-3B. Banks and NBFCs may instead take 50% of eligible ITC each month under Section 17(4).

Credit not available under Section 17(5)

5. Special Situations: Section 18

• Credit on opening stock when a person registers within 30 days of liability, takes voluntary registration, leaves composition, or when an exempt supply becomes taxable (Section 18(1), Rule 40, ITC-01).
• Transfer of unutilised ITC on amalgamation, merger, sale or transfer of business, where liabilities are also transferred (Section 18(3), Rule 41, ITC-02).
• Reversal of credit on stock when a person opts for composition or supplies become wholly exempt (Section 18(4), ITC-03).
• Tax on sale of capital goods on which ITC was taken: higher of ITC taken less 5% per quarter of use, or tax on transaction value (Section 18(6)).

6. Availment, Utilisation and Reversal

• Section 41: ITC is availed on self-assessment in GSTR-3B and credited to the electronic credit ledger.
• Section 49 and Rule 88A: IGST credit is used first for IGST, then CGST and SGST in any order; CGST cannot pay SGST and vice versa.
• Rule 86A: the Commissioner may block credit in the ledger for up to one year where there are reasons to believe it was fraudulently availed.
• Rule 86B: where taxable supplies exceed ₹50 lakh in a month, at least 1% of output tax must be paid in cash, subject to exceptions.
• Post-sale discounts (from 1 November 2026): where the supplier issues a credit note under Section 34 for a discount, the recipient must reverse the matching ITC. See changes from 1 November 2026.
• Wrong ITC: interest at 18% applies where wrongly availed credit is utilised (Section 50(3)); demand is raised under Section 73, 74 or 74A. See our demand and recovery guide.

7. Input Service Distributor: Section 20 and Rule 39

From 1 April 2025, a business that receives common input services (including on reverse charge) for several GSTINs under the same PAN must register as an ISD and distribute the credit in proportion to turnover through GSTR-6.

Quick Reference

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