Input tax credit under GST: the complete 2026 position
Credit is where the department collects. Every condition in Section 16 is a place where a demand can begin.
Input tax credit is available to a registered person on inputs, input services and capital goods used or intended to be used in the course or furtherance of business, subject to the four conditions in Section 16(2), the time limit in Section 16(4), the blocked credit list in Section 17(5), the apportionment rules in Section 17(1) to (4), and the reversal rules in Rules 37, 37A, 42 and 43. Since October 2024 the Invoice Management System has added an acceptance step that itself now generates disputes.
The four gates in Section 16(2)
Section 16(2) opens with a non obstante clause, which means the four conditions override the general entitlement in Section 16(1). All four must be satisfied.
You must hold a tax invoice or other prescribed document. You must have received the goods or services, with the deeming provisions covering bill to ship to and delivery to an agent. The tax charged must have been actually paid to the Government. And you must have furnished the return under Section 39.
Clause (aa) adds a fifth in substance: the details of the invoice must have been furnished by the supplier in its outward statement and communicated to you. That is the statutory foundation of every GSTR-2B mismatch notice.
The conditions are cumulative and each is a separate ground of demand. A reply that answers only the mismatch and not the receipt of goods leaves the second gate open.
Time limits, and the two that are usually confused
Section 16(4) fixes the outer date for availing credit on an invoice or debit note: the thirtieth day of November following the end of the financial year, or the date of filing the annual return, whichever is earlier. The thirtieth of November date applies from the financial year 2022-23 onwards; for earlier years the outer date was the due date of the return for September following the year, subject to the retrospective relaxations for 2017-18 to 2020-21.
That is different from Rule 37, which reverses credit already availed if the supplier is not paid within one hundred and eighty days, and from Rule 37A, which reverses credit where the supplier has not filed its GSTR-3B by the specified date.
It is also different from the re availment rights, which permit credit to be taken back once the payment is made or the supplier files. Re availment is not subject to the Section 16(4) date, and departments frequently deny it as if it were.
Apportionment and blocked credit
Where inputs are used partly for business and partly otherwise, or partly for taxable and partly for exempt supplies, Section 17(1) and (2) restrict credit to the business or taxable portion, computed under Rules 42 and 43. Exempt supply for this purpose includes reverse charge supplies, the sale of land and buildings, and the sale of securities.
Section 17(5) blocks credit outright on the specified list — motor vehicles within the seating limit, food and beverages, club and health services, works contract and construction for immovable property, goods lost or written off, and goods or services used for personal consumption, among others.
Section 17(5) is where the largest single ticket disputes arise, because it applies irrespective of business use. The clause by clause map is set out in the dedicated page on Section 17(5).
The credit file you should be able to produce in year six
For each significant supplier: the invoice with its e-invoice reference number, the GSTR-2B extract showing the invoice, the payment record, the movement evidence and the consumption evidence.
For each reversal: the working, the rule under which it was made, the ledger entry, and the re availment entry with its date.
For each blocked credit judgment call: a dated internal note recording the reasoning. A note written at the time is evidence of bona fides. A note written after a notice is an argument.
Records must be retained for the period prescribed by Section 36, which in practice means you must be able to answer for a year long after the people who booked the entries have left.
Exhibit — The reversal rules, side by side
| Rule | Trigger | Re availment |
|---|---|---|
| Rule 37 | Supplier not paid within 180 days of the invoice date | On payment, without the Section 16(4) bar |
| Rule 37A | Supplier has not filed GSTR-3B by the specified date | When the supplier files the return |
| Rule 42 | Inputs and input services used partly for exempt or non business purposes | Annual reconciliation with interest or refund of the difference |
| Rule 43 | Capital goods used partly for exempt or non business purposes | Monthly attribution over sixty months |
| Section 17(5) | Blocked category, irrespective of use | No re availment; the credit is lost |
A single transaction can attract more than one of these. Departments often demand the same amount twice under two rules.
Authorities relied on
Credit restrictions in Section 17(5) are valid; plant or machinery in clause (d) is distinct from the defined plant and machinery, subsequently amended retrospectively.
The claimant bears the burden of proving the genuineness of the transaction and the actual movement of goods.
Credit is a statutory entitlement and a time limit on its availment is a valid condition.
What to do on Monday
Run a monthly three way reconciliation of books, GSTR-2B and GSTR-3B, and close the gap in the same month rather than in the annual return.
Maintain a reversal register keyed to the rule invoked, with the re availment date, so that a demand under two rules on the same amount can be answered in one page.
Write a dated note for every judgment call on blocked credit, before the return is filed.
Review the top twenty suppliers by credit value each quarter for filing default, and hold the tax component where the invoice has not appeared.
This page states the general position. A reader with a specific question on their own facts may write to the GST practice at AMLEGALS.
Write to the GST practiceQuestions we are asked on this
Is credit available on an advance payment?
No. Credit follows receipt of the goods or services and the invoice, so an advance paid with tax under an invoice for services is credited when the service is received under the invoice, not when the money leaves.
Can credit be availed on a supplementary invoice or debit note?
Yes, and since the 2020 amendment the time limit runs from the financial year of the debit note, not of the original invoice.
What if the invoice is in the name of the head office but the service is used at a branch?
That is a distribution question. Use the Input Service Distributor mechanism, which is now mandatory for common input services, rather than availing the whole credit centrally.
Does credit lapse if the registration is cancelled?
Credit in the ledger is dealt with under Section 29(5) and the reversal on cancellation. Plan the utilisation before applying for cancellation, not after.
Is credit available where the supplier charged the wrong rate?
Credit is limited to the tax properly payable. Where excess tax was charged, the remedy is a credit note from the supplier, not a claim for the excess.
In this cluster
- Section 16(2)(c): can your ITC be denied because the supplier did not pay tax?
- Section 16(4) time limit for claiming ITC: what survives after the amnesty
- GSTR-2A and 2B mismatch notices: how to answer without conceding
- Blocked credits under Section 17(5): the clause by clause map
- Safari Retreats: what the Supreme Court decided on ITC for construction, and what Parliament then undid
- ITC on canteen, transport, insurance and other employee benefits
- ITC reversal under Rules 42 and 43: working the formula correctly
- Rule 37: ITC reversal when you do not pay your supplier within 180 days
- Rule 37A: reversal where your supplier did not file its GSTR-3B
- Rule 86A blocking of the electronic credit ledger: the remedies that actually work
GST Insights is published by AMLEGALS for general information. Law stated as on 3 September 2026. Not advice on any particular set of facts; not an advertisement or a solicitation under Rule 36 of the Bar Council of India Rules. Readers with a question on their own facts may write to the GST practice of their own accord.