# Input Tax Credit — Conditions for Availment (Section 16)

## Who can claim ITC?

Only a Registered Person under GST is eligible to take Input Tax Credit (ITC).

## Four Cumulative Conditions (Section 16(2))

A registered person can claim ITC only if ALL the following conditions are satisfied:

### 1. Possession of a Tax-Paying Document

The recipient must hold a valid tax-paying document such as:

Tax Invoice
Debit Note
Bill of Entry (in case of imports)
ISD invoice/credit note

### 2. Receipt of Goods or Services

The recipient must have actually received the goods or services (or both).

Important Exceptions (Deemed Receipt):

Bill-to-Ship-to Model: When goods are delivered by the supplier to a third person on the direction of the registered person, it is deemed that the registered person has received the goods. Hence, ITC is available to him.
Works Contract / Services Delivered to Third Party: Where services are provided by the supplier to any person on the direction of the registered person, the registered person is deemed to have received the services.

### 3. Tax Actually Paid to Government

The tax charged in respect of the supply must have been actually paid to the Government by the supplier (either in cash or through utilisation of ITC).

### 4. Furnishing of Return

The recipient must have furnished the return under Section 39 (GSTR-3B).

## Additional Critical Rules

### Reflection in GSTR-2B

The details of the invoice/debit note must be:

Furnished by the supplier in GSTR-1 / IFF / GSTR-1A, AND
Reflected in the recipient's GSTR-2B.

### Goods Received in Lots / Instalments

Where goods are received in lots or instalments against a single invoice, ITC can be availed only upon receipt of the LAST lot or instalment.

### ITC Not Available in Case of Fraud

ITC cannot be availed if the supply involves fraud, wilful misstatement, or suppression of facts (per Section 74).

### Depreciation Bar

If the registered person has claimed depreciation under the Income-tax Act on the tax component of the cost of capital goods/plant and machinery, then ITC on that tax component shall NOT be allowed. (One must choose either depreciation OR ITC on the tax component, not both.)

Worked example

### Example 1

Example — Bill-to-Ship-to Model:

Mr. A (Delhi) places an order with Mr. B (Mumbai) for supply of goods, instructing Mr. B to deliver the goods directly to Mr. C (Chennai). Mr. B issues the invoice in the name of Mr. A and dispatches the goods to Mr. C.

→ Although Mr. A never physically receives the goods, he is deemed to have received them. Hence, Mr. A can claim ITC on the invoice issued by Mr. B (subject to other Section 16 conditions).

### Example 2

Example — Goods Received in Instalments:

XYZ Ltd. orders a machine worth ₹10,00,000 + GST ₹1,80,000. A single invoice is raised on 5th April. The machine is dispatched in 3 lots — Lot 1 on 10th April, Lot 2 on 25th April, and Lot 3 (final) on 15th May.

→ XYZ Ltd. can claim the entire ITC of ₹1,80,000 only on 15th May (when the last lot is received), not proportionately on receipt of earlier lots.

### Example 3

Example — Depreciation vs ITC on Capital Goods:

A company purchases plant for ₹5,00,000 + GST ₹90,000. If it capitalises ₹5,90,000 in books and claims depreciation on ₹5,90,000 under the Income-tax Act → No ITC of ₹90,000 is allowed.

If it capitalises only ₹5,00,000 (tax component charged to ITC ledger) → ITC of ₹90,000 is available.

⚠️ Common exam mistakes

Believing that an unregistered person can claim ITC — only a registered person is eligible.
Claiming ITC on receipt of the first lot when goods are supplied in instalments against a single invoice — ITC is allowed only on receipt of the LAST lot.
Claiming both depreciation on the tax component AND ITC — this is specifically prohibited.
Ignoring the GSTR-2B reflection requirement — even if the recipient has the invoice, ITC is not available unless it appears in GSTR-2B.
Forgetting that in a Bill-to-Ship-to transaction, the 'bill to' party (not the 'ship to' party) is entitled to ITC.
Assuming ITC is allowed without furnishing GSTR-3B — return furnishing is a mandatory condition.

Bare-Act text Section 16(2) · Central Goods and Services Tax Act, 2017 · click to expand

Section 16(2): 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; (aa) the details of the invoice or debit note referred to in clause (a) has been furnished by the supplier in the statement of outward supplies and such details have been communicated to the recipient of such invoice or debit note in the manner specified under section 37; (b) he has received the goods or services or both; (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.

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Conditions for availing Input Tax Credit (Section 16)

Worked example

⚠️ Common exam mistakes