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What are the Eligibility and Conditions to take ITC?

Tanya gupta 
on 18 May 2020


Streamlining the provisions of Sec 16

Am I eligible to claim ITC? What it is all about? What are the conditions for asserting it? These are some of those questions which troubled me when I was preparing and even now when I am a qualified Chartered Accountant.
Goods and service tax ("GST") stands on two very strong concrete pillars. The manner in which the earth revolves around the sun, exactly in the same way, GST revolves around output tax and input tax.

In a very layman language, tax paid on inward supply (purchases) is termed as input tax of which we claim "credit" or "refund" and the other is a tax charged on outward supply (sales) is termed as output tax, which is the revenue we collect on behalf of the government.

Claiming credit of input tax is all alone a cumbersome process in itself. One needs to find a way through the series of governing sections, notifications, rules and circulars for proclaiming the credit of the tax paid. And here is the one such attempt to facilitate the provisions contained in SEC 16 which states the ELIGIBILITY CRITERIA ALONG WITH

Eligibility and Conditions to take ITC  Section 16 of the CGST Act


1. Sec 16(1) states that "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."

Key points:

• There should be a registered person,
• He should have paid tax on any goods or service, for which now he can claim credit,
• Those good or service should be INTENDED to be used in the course or furtherance of business

Case study:

Q1. Mr A had taken the services for GST registration and had paid tax on the same of Rs 100. Is he eligible to claim ITC as per sec 16(1)?

Ans. Yes, Mr A is eligible because he would now be a registered person and the said service was taken in the course or furtherance of business. His GSTN would be mentioned on the invoice which he will be receiving from the supplier.

2. Sec 16(2) states that "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 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;


(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 an 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."


Key points:

• The recipient should be in possession of a tax invoice or debit note, issued by the supplier or such other tax paying document given in rule 36.

And as per the said rule following is the list of documents on the basis of which one can claim credit :

a. tax invoice
b. self invoice issued in case of rcm from unregistered person
c. a debit note
d. a bill of entry
e. an ISD invoice

• The recipient should receive the goods or service
• The recipient should furnish valid GSTR 3B
• The supplier should pay tax and furnish his return on time.
• The recipient should pay the amount along with the tax within a period of 180 days from the issue of "INVOICE", otherwise, the amount equals to ITC available shall be added to his output tax liability along with the interest.

Although if he makes the payment after the said 180 days he can avail the credit of the tax paid.

3. Sec 16(3) states that "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."

Key points:

One can claim either ITC in GST or depreciation as per the Income Tax Act.

4. Sec 16(4) states that " 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."

Key points

• There should be a registered person,
• He can claim ITC on the basis of any "INVOICE" or debit note
• Maximum to the 20th October or annual return whichever is earlier.

Points to remember:

• As per sec 2(66) invoice means the tax invoice referred u/s 31 and sec 31 includes tax invoice, self invoice, receipt voucher, payment voucher and bill of supply but doesn't explicitly say anything regards to BILL OF ENTRY.

As on date via finance act, 2019, GOI had omitted the words "invoice relating to such" from sec 16(4), which eases of the condition of claiming ITC on debit invoice only.

Also via finance act, 2018 and notifications issued in regard of sec 43A, many amendments are brought into effect but these are postponed to a later date in October, 2020.

Disclaimer: This is my interpretation, though as discussed above, time limit of availing credit is not applicable on imports, one should really need to know the law of customs to get into the insight and one can always reach out to me in case of any suggestions, feedback or discussion.

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