CGST Act · Chapter V
Input Tax Credit
s. 16Eligibility and conditions for ITC
Section 16 is the gateway to input tax credit — the mechanism that makes GST a tax on value added. Credit is allowed on supplies used in business, but only if every condition in sub-section (2) is met and the claim is made within the time in sub-section (4). The most contested condition — that the supplier must actually have paid the tax — was upheld by the Gujarat High Court, and the Supreme Court has affirmed that judgment, though an appeal against a contrary Tripura High Court decision is pending before it.
- Under section 16 of the CGST Act, 2017 a registered person may take credit of tax on supplies used or intended to be used in the course or furtherance of business, subject to the conditions in section 16(2).
- The conditions are: a tax invoice or debit note; the invoice reflected in GSTR-2B (from 01.01.2022); receipt of the goods or services; credit not restricted under section 38; the tax actually paid to the Government by the supplier; and the recipient's own return filed.
- In Bhandari Scrap Traders v Union of India (24.07.2026) the Supreme Court dismissed special leave petitions against the Gujarat High Court's judgment upholding section 16(2)(c), agreeing that credit is available only if the supplier has actually paid the tax and that the provision is not to be read down in favour of bona fide purchasers. The order records that a petition against the Tripura High Court's contrary decision in Sahil Enterprises has been entertained.
- If the recipient does not pay the supplier within 180 days of the invoice, an amount equal to the credit must be paid back with interest, and may be re-availed when payment is made.
- Credit must be taken by 30 November following the financial year or the annual return, whichever is earlier (section 16(4)); for 2017–18 to 2020–21 credit taken in returns filed up to 30.11.2021 is protected by section 16(5).
s. 17Apportionment and blocked credits
Section 17 limits the credit that section 16 allows. Sub-sections (1) to (4) apportion credit where inputs serve both taxable and other purposes; sub-section (5) lists credits that are blocked altogether, whatever the use — the provision most often in dispute after section 16 itself.
- Under section 17(1) and (2) of the CGST Act, 2017 credit is restricted to the part attributable to business purposes and to taxable (including zero-rated) supplies; the computation is in Rules 42 and 43.
- Exempt supplies for this purpose include supplies taxed on reverse charge, transactions in securities, sale of land and of completed buildings (section 17(3)).
- Section 17(5) blocks credit on, among others, motor vehicles for up to 13 persons, food and beverages, club memberships, works contracts and goods or services for construction of immovable property on own account, CSR expenditure (from 01.10.2023), goods lost or given as free samples, and tax paid under section 74.
- The Finance Act, 2025 substituted "plant and machinery" for "plant or machinery" in section 17(5)(d) with effect from 01.07.2017, overriding the Supreme Court's reading in Safari Retreats (2024); credit on construction of malls, hotels and buildings for letting remains blocked.
- In Bharti Airtel v Commissioner of Central Excise (2024) the Supreme Court held mobile towers and prefabricated shelters to be movable goods, not immovable property — relevant to whether the construction block applies at all.
s. 18Availability of credit in special circumstances
Section 18 handles credit at the edges of the GST system — when a business enters it, changes scheme, changes hands, or sells its capital goods. It lets credit in where tax was paid on stock before the business could claim it, and takes credit back where the business leaves the taxable chain.
- Under section 18(1) of the CGST Act, 2017 credit may be taken on inputs held in stock (and, in some cases, capital goods) when a person registers within thirty days of becoming liable, registers voluntarily, leaves the composition scheme, or when its exempt supplies become taxable.
- Credit under section 18(1) cannot be taken on an invoice more than one year old (section 18(2)).
- On a sale, merger, demerger, amalgamation, lease or transfer of business with transfer of liabilities, unutilised credit may be transferred to the transferee (section 18(3)).
- A person moving to composition, or whose supplies become wholly exempt, must pay back credit on stock and capital goods, and the balance lapses (section 18(4)).
- On supplying capital goods on which credit was taken, the supplier pays the higher of the credit taken less prescribed percentage points and the tax on transaction value (section 18(6)).
s. 19Job work credit
Section 19 keeps credit with a principal who sends goods out for processing. The principal takes credit even if the goods go straight from the supplier to the job worker, but must bring them back, or supply them from the job worker's premises, within a time limit — or treat them as supplied.
- Under section 19 of the CGST Act, 2017 a principal may take credit on inputs and capital goods sent to a job worker, including those sent directly by the supplier to the job worker.
- Inputs not returned within one year (capital goods within three years) of being sent out are deemed supplied by the principal to the job worker on the day they were sent.
- Moulds, dies, jigs, fixtures and tools are outside the deemed-supply rule (section 19(7)).
s. 20ISD distribution
A company with registrations in several States often receives one invoice for a service used by all of them — an audit, software, advertising. Section 20 requires the office receiving such invoices to register as an Input Service Distributor and pass the credit on to the registrations that actually use the service.
- From 01.04.2025, under section 20 of the CGST Act, 2017 as substituted by the Finance Act, 2024, an office receiving invoices for input services on behalf of distinct persons must register as an Input Service Distributor and distribute the credit.
- The Finance Act, 2025 extended the scheme, also from 01.04.2025, to services on which IGST is paid on reverse charge under section 5(3) or (4) of the IGST Act.
- Credit is distributed in the manner prescribed in Rule 39 — broadly, to the recipients using the service, in proportion to turnover — by an ISD invoice reported in Form GSTR-6.
- Before 01.04.2025 the ISD route was optional; common services could alternatively be cross-charged between distinct persons.
s. 21Recovery of excess ISD credit
Section 21 is the enforcement side of section 20. If an ISD distributes more credit than the rules allow — to the wrong unit, in the wrong proportion — the excess is recovered from the recipients that received it.
- Under section 21 of the CGST Act, 2017, credit distributed by an Input Service Distributor in contravention of section 20 is recoverable from the recipients, with interest.
- Recovery is made under section 73 or 74 and, for periods from 2024–25, section 74A (inserted from 01.11.2024).