Credit on Registration or Leaving Composition: ITC-01

A business that registers, or that leaves the composition scheme, usually already holds stock bought with GST in the price. That tax can become input tax credit, but not through the monthly return. It has to be claimed once, in a separate declaration, FORM GST ITC-01, within thirty days. Invoices more than a year old do not count. Above two lakh rupees, the claim needs an accountant’s certificate. A business that misses the window has, in most cases, lost the credit.

This guide covers who can claim, how the amount is worked out, what the form asks for, the portal steps, and what happens when the deadline passes. The general conditions for credit are in Input Tax Credit: the Conditions in Section 16. Leaving the composition scheme is covered in Opting In and Out of the Composition Scheme.

Four situations in section 18(1)

Section 18(1) of the CGST Act gives credit on stock in four situations. Rule 40(1)© fixes the day on which the stock is counted for each.

Clause	Who	What qualifies	Stock counted on
18(1)(a)	A person who applied for registration within thirty days of becoming liable, and was registered	Inputs in stock, and inputs in semi-finished or finished goods	The day before liability to pay tax arose
18(1)(b)	A person who registered voluntarily under section 25(3)	The same	The day before the date of grant of registration
18(1)©	A registered person who “ceases to pay tax under section 10”	The same, plus capital goods	The day before liability under section 9 began
18(1)(d)	A registered person whose exempt supply “becomes a taxable supply”	Inputs and semi-finished or finished goods “relatable to such exempt supply”, and capital goods “exclusively used” for it	The day before the supply became taxable

Capital goods qualify only under clauses © and (d). A person who registers late or voluntarily gets nothing for machinery already in use.

Clause (a) has its own condition. The person must have applied “within thirty days from the date on which he becomes liable to registration”. An application made after that falls outside clause (a), and no other clause applies to it.

The two limits that shorten the claim

Thirty days. Rule 40(1)(b) requires the declaration “within a period of thirty days from the date of becoming eligible to avail the input tax credit under sub-section (1) of section 18”. The Commissioner may extend that period, but only “by a notification in this behalf”. For a person leaving composition, rule 6(6) runs the thirty days “from the date from which the option is withdrawn or from the date of the order passed in FORM GST CMP-07”.

One year. Section 18(2) bars credit under section 18(1) “after the expiry of one year from the date of issue of tax invoice relating to such supply”. The portal’s FAQ on ITC-01 says that, for capital goods, “the invoices can be dated 5 years prior” to the relevant date. Section 18(2) contains no such exception, and it is the Act that governs.

How often. The portal’s FAQ adds that a claim under clause (a) or (b) “can be made only once”, a claim under clause © “once in a financial year”, and a claim under clause (d) whenever an exempt supply becomes taxable.

Capital goods: five percentage points a quarter

Rule 40(1)(a) reduces the tax paid on capital goods “by five percentage points per quarter of a year or part thereof from the date of the invoice”. The form’s footnote applies the same reduction to value. A part quarter counts as a whole one.

Suppose a composition taxpayer bought a machine on an invoice dated 10 December 2025, carrying Rs 1,80,000 of tax, and moves to normal tax from 1 October 2026. From 10 December 2025 to 30 September 2026 there are three full quarters and part of a fourth, so four quarters count. That is twenty percentage points. The credit is 80 per cent of Rs 1,80,000, or Rs 1,44,000.

The reduction and the one-year bar work together. Had the same machine been bought on an invoice more than a year old when the credit is taken, section 18(2) would bar the credit altogether, whatever the reduction left.

What to have ready

• Stock statement as on the day fixed by rule 40(1)©, split into inputs, inputs in semi-finished goods and inputs in finished goods. This comes from the books and the physical count.
• Purchase invoices and bills of entry for each item: supplier’s GSTIN, invoice number and date, quantity, and value as adjusted by debit and credit notes. These come from the books. The form allows “first-in first-out” where an item cannot be traced to a particular invoice.
• Capital goods register with invoice dates and tax paid, for clauses © and (d).
• The supplier’s return. For clauses © and (d), rule 40(1)(e) requires the claim to be “verified with the corresponding details” furnished by the supplier in GSTR-1, in GSTR-1A (added by Notification No. 12/2024-Central Tax of 10 July 2024), or in GSTR-4. A purchase the supplier never reported will not match.
• The trigger date and its evidence. This is the date liability arose and the REG-01 application for clause (a), the registration certificate for (b), the CMP-04 or CMP-07 for ©, and the notification making the supply taxable for (d).
• An accountant’s certificate, if the claim is large enough. Rule 40(1)(d) requires certification by “a practicing chartered accountant or a cost accountant if the aggregate value of the claim on account of central tax, State tax, Union territory tax and integrated tax exceeds two lakh rupees”.

The form, item by item

The current FORM GST ITC-01 is the version in the CGST Rules’ annexure, and the CBIC copy shows no later substitution. Its structure is as follows.

• Items 1 to 3: the claimant’s GSTIN, legal name and trade name.
• Items 4 to 6: the trigger date. Item 4 is the date liability under section 9 arises, for clauses (a) and ©. Item 5 is the date of grant of voluntary registration, for (b). Item 6 is the date the supply becomes taxable, for (d).
• Table 7, for clauses (a) and (b): 7(a) is inputs held in stock and 7(b) is inputs in semi-finished or finished goods. Each line carries the supplier’s GSTIN, or its registration under the old excise or VAT law, along with the invoice, description, unit quantity code, quantity, value, and credit by tax head.
• Table 8, for clauses © and (d): the same, plus 8© for capital goods, valued “reduced by five percentage points per quarter”.
• Item 9: particulars of the certifying accountant and an upload of the certificate.
• Item 10: verification by the authorised signatory.

Filing on the portal

The portal’s user manual for ITC-01 describes these steps.

1. After login, the claimant goes to Services, then Returns, then ITC Forms, and chooses PREPARE ONLINE on the GST ITC-01 tile.
2. The claimant selects the clause from the “Claim made under” list.
3. Each invoice is entered: supplier GSTIN, invoice number and date, goods type, description, unit, quantity, value and tax by head. The manual notes that the “Invoice date should be prior to grant of approval”. The claimant adds and saves each line.
4. PREVIEW produces a draft PDF.
5. SUBMIT freezes the data. The manual warns that, after submission, the claimant “cannot change any fields”.
6. Where the claim exceeds two lakh rupees, the claimant enters the certifying firm, the accountant’s name, membership number and certificate date, and uploads the certificate “in JPEG format with maximum size of 500 KB”.
7. The claimant ticks the declaration, selects the authorised signatory and files with a digital signature certificate (DSC) or an electronic verification code (EVC). The portal issues an ARN and sends an SMS and email.

The portal’s FAQ says that, once the form is filed, “the amount of ITC claimed would be posted to your credit ledger”. The credit does not pass through GSTR-3B. It is reported in the annual return instead. Table 6M of GSTR-9, as substituted by Notification No. 13/2025-Central Tax with effect from 22 September 2025, asks for credit availed “through FORM ITC-01, FORM ITC-02 and ITC-02A”. Filing the Annual Return, GSTR-9 covers that table.

Who signs

The authorised signatory signs the verification. Under rule 26(1), a person registered under the Companies Act, 2013 must verify with a DSC. Other claimants may use a DSC or an EVC.

When the thirty days have passed

Rule 40 contains no late-filing route. The only extension it recognises is a Commissioner’s notification. Every extension found in the Central Tax notifications was general or for a class of taxpayers, never for one person: Nos. 44/2017, 52/2017 and 67/2017 in the first year of GST, and No. 42/2018. No. 42/2018 extended the time by thirty days for those who had filed CMP-04 between 2 and 31 March 2018. A search of the Central Tax notifications issued up to 7 May 2026 found none later.

Two High Courts have dealt with taxpayers who said the portal stopped them filing on time.

In Ezzy Electricals v. State of Gujarat (Gujarat High Court, 16 February 2022), a proprietor left composition from 1 April 2018. He tried to file ITC-01 within the period extended by Notification No. 42/2018, and wrote to the department at least fifteen times. The GSTN’s affidavit said he had used the wrong offline tool, and that there had been no portal fault. The court accepted that he was partly at fault. It nevertheless held that, if he was otherwise entitled, “a technical glitch in the portal should not deprive him of such a claim”, and directed that he be allowed to upload the form for about Rs 5 lakh of credit.

In Deepsons Auto Centre v. Union of India (Jharkhand High Court, 18 January 2023), the taxpayer had permission to leave composition from 12 July 2018, which put the deadline at 12 August 2018. It complained of an error on that day. The GSTN said the portal was working and that the form had been saved but never submitted, while the State’s nodal officer had asked for the portal to be reopened. The court called it “a borderline situation”. It did not order the form to be accepted. Instead, it directed the taxpayer to apply to the Commissioner of State Tax for an extension under rule 40(1)(b), to be decided within four weeks, and expressly declined to decide whether that power can be used for one taxpayer.

Neither decision treats a late ITC-01 as a matter of right. Each turned on evidence of an attempt to file within time.

When too much is claimed

Credit taken on ineligible stock, on invoices more than a year old, or above the capital goods reduction is credit wrongly availed. It is recovered through the notice procedure in section 73, 74 or 74A, described in GST Notices: DRC-01A, DRC-01 and Sections 73, 74 and 74A. If the excess has been used to pay tax, section 50(3) charges interest at 18 per cent, but only where the credit was “wrongly availed and utilised”.

The form cannot be edited after submission. An excess is corrected by reversing it in a later return or paying it through FORM GST DRC-03. Correcting Mistakes in Returns and Late Returns: Late Fee, Interest, the Three-Year Bar and Notices cover both routes.

The procedure in summary

1. Identify the clause of section 18(1) that applies, and the day on which stock is counted under rule 40(1)©.
2. Take stock on that day, and match each item to an invoice dated within the preceding year.
3. For clauses © and (d), check that each supplier’s GSTR-1, GSTR-1A or GSTR-4 shows the invoice, and reduce capital goods by five percentage points per quarter.
4. If the total of central, State, Union territory and integrated tax exceeds two lakh rupees, obtain a practising accountant’s certificate.
5. Within thirty days of eligibility, enter the invoices in ITC-01 on the portal, preview, submit and add the certificate.
6. File with a DSC (mandatory for companies) or EVC, keep the ARN, and check the credit ledger.
7. Report the credit in table 6M of GSTR-9 for the year.

The next guide in this set covers moving unused credit to another business on a sale, merger or demerger, in FORM GST ITC-02.