Section 16 of CGST Act, 2017 : Section 16: Eligibility And Conditions For Taking Input Tax Credit

Explanation using Example

Imagine a scenario where Mr. A owns a business registered under GST. He purchases raw materials from Supplier B, who is also registered under GST. Mr. A receives an invoice from Supplier B, which includes GST on the raw materials. Mr. A uses these raw materials to manufacture goods which he later sells.

Under Section 16(1) of the CGST Act, Mr. A can claim input tax credit (ITC) for the GST paid on these raw materials since they are used in the course of his business. He can credit this amount to his electronic credit ledger, which can be used to offset against his output tax liability.

However, to claim this ITC, Mr. A must ensure that:

• He has a valid tax invoice from Supplier B (Section 16(2)(a)).
• He has actually received the goods (Section 16(2)(b)).
• The details of the ITC have not been restricted (Section 16(2)(ba)).
• The GST charged on the supply has been paid by Supplier B to the Government (Section 16(2)(c)).
• Mr. A has filed his GST returns (Section 16(2)(d)).

If Mr. A receives the raw materials in multiple lots, he can claim ITC only after receiving the last lot (First proviso to Section 16(2)).

If Mr. A fails to pay Supplier B within 180 days, he must reverse the ITC claimed and also pay interest on it (Second proviso to Section 16(2)).

If Mr. A has claimed depreciation on the GST component of capital goods in his income tax filings, he cannot claim ITC on that GST component (Section 16(3)).

Mr. A must also remember that he cannot claim ITC after the 30th of November of the next financial year to which the invoice pertains or the date of filing the annual return, whichever is earlier (Section 16(4)).