What Are the Input Tax Credit Rules Under GST?

Input tax credit under GST lets a registered business reduce its final tax liability by claiming credit for the GST already paid on business purchases. It is governed by Sections 16 to 21 of the CGST Act, 2017, which is Chapter V. Section 2(63) supplies the definition, Section 16 the conditions and Section 17 the blocked credits. Section 18 covers the special circumstances, and Sections 20 and 21 the Input Service Distributor. Rules 36 to 45 of the CGST Rules, 2017 contain the procedure, and Rules 86A, 86B, 88B, 88C and 88D restrict or question credit already claimed. Credit must be claimed by 30 November following the end of the financial year, or the date of filing the annual return in Form GSTR-9, whichever is earlier. The most recent amendment is Finance Act, 2025, Section 124, which came into force on 1 October 2025 and substituted "plant and machinery" for "plant or machinery" in Section 17(5)(d) with retrospective effect from 1 July 2017.

Law stated as on 10 September 2026, verified against the Central Goods and Services Tax Act and Rules and against the notification and circular register as it stood on 7 May 2026 for notifications and 25 July 2026 for circulars. Reviewed by KSMG Knowledge Desk.

• GST Registration: The claimant must be registered under GST as a regular taxpayer; a composition dealer cannot claim input tax credit at all.
• Valid Documents: You must hold a tax invoice, a debit note, a bill of entry or one of the other documents Rule 36 prescribes, and it must carry the particulars that rule requires.
• Receipt of Goods/Services: The goods or services must have been received in fact, and where a supply arrives in lots or instalments the credit is available only when the last lot is received.
• Tax Paid by Supplier: The tax charged on the invoice must have been paid to the Government by the supplier in fact, in cash or through his own credit, under Section 16(2)(c).
• Auto-Population: The invoice must be auto-populated from your supplier's GSTR-1 into your GSTR-2B, the auto-generated statement taxpayers work from, and Section 16(2)(aa) allows credit only where the supplier has furnished those details and they have been communicated to you.
• Business Use Only: The goods or services must be used, or intended to be used, in the course or furtherance of business, and personal consumption carries no credit.
• Return Filed: You must have furnished the return under Section 39 for the tax period in which the credit is taken.
• Payment within 180 Days: Pay the supplier the value of the supply together with the tax within 180 days of the date the invoice was issued, or reverse the credit proportionately under Rule 37.
• No Depreciation on the Tax: Where depreciation has been claimed on the tax component of the cost of capital goods under the Income-tax Act, 1961, no credit is available on that tax component, under Section 16(3).
• Split of Common Credit: Where inputs serve both taxable and exempt or non-business use, only the taxable share is available, and Rules 42 and 43 do the apportionment.
• Time Limit: Claim by 30 November following the end of the financial year, or the date of filing the annual return in Form GSTR-9, whichever is earlier, under Section 16(4).

Section 16(2) opens with the words "notwithstanding anything contained in this section", and its conditions have to be satisfied together rather than in the alternative. Each of the eleven is a condition of entitlement to input tax credit, and a claim fails where any one of them fails.

Take a single invoice, a supplier's bill for machinery spares bought for the factory. You are registered as a regular taxpayer, so the first condition is met; you hold the tax invoice with the particulars Rule 36 requires, so the second is. The spares have arrived, the supplier has paid the tax he charged, and the invoice has auto-populated into your GSTR-2B, which is three more. They are used in the business and not for personal consumption, and you have filed the return for the period in which you are taking the credit. If you pay the supplier within a hundred and eighty days you keep the credit; if you do not, Rule 37 takes it back until you do. You claim no depreciation on the tax component, the spares serve only taxable output so there is nothing to apportion, and you take the credit inside the time limit. Eleven conditions, one invoice, and every one of them has to hold.

Credit is blocked outright on a closed list of supplies by Section 17(5) of the CGST Act, 2017, whatever the business purpose.

• Motor vehicles for the transportation of persons with an approved seating capacity of not more than thirteen persons including the driver, except for the specific commercial uses the clause permits
• Vessels and aircraft, except for further supply, transportation of passengers or goods, or training on navigating or flying them
• Services of general insurance, servicing, repair and maintenance of those motor vehicles, vessels or aircraft, subject to the exceptions in the proviso
• Food and beverages, outdoor catering, beauty treatment, health services and cosmetic surgery
• Membership of a club, health and fitness centre
• Leasing, renting or hiring of motor vehicles, vessels or aircraft, and life and health insurance, except where an employer is obliged to provide them under any law
• Travel benefits extended to employees on vacation, including leave or home travel concession
• Works contract services for the construction of immovable property, other than plant and machinery
• Goods or services received for the construction of immovable property on the taxpayer's own account
• Goods or services on which tax has been paid under the composition levy
• Goods or services received by a non-resident taxable person, except goods imported by him
• Goods or services used for activities relating to corporate social responsibility under Section 135 of the Companies Act, 2013
• Goods or services used for personal consumption
• Goods lost, stolen, destroyed, written off, or disposed of by way of gift or free samples
• Any tax paid under Section 74 in respect of any period up to Financial Year 2023-24

Each clause of Section 17(5) has its own exceptions and its own litigation.

Input tax credit must be claimed by 30 November following the end of the financial year to which the invoice relates, or the date of filing the annual return in Form GSTR-9, whichever is earlier. The limit is set by Section 16(4) of the CGST Act. In practice the credit has to be taken in a return. The last return for the previous financial year is the October GSTR-3B, due on 20 November, so the statutory 30 November is the outer limit rather than the working one. A debit note is delinked from the invoice it relates to for this purpose and has its own financial year.

Section 16(5) reopens the position for certain earlier years, and Section 16(6) does the same for a registration that was cancelled and later restored. Each financial year has its own date under the Section 16(4) time limit.

Input tax credit is governed by Chapter V of the CGST Act, 2017, which runs from Section 16 to Section 21. Section 16 sets the eligibility conditions and Section 17 apportions common credit and blocks specified credits. Section 18 deals with credit on stock when circumstances change and Section 19 covers goods sent for job work. Sections 20 and 21 govern distribution by an Input Service Distributor and recovery of credit distributed in excess. Section 2(63) supplies the definition the whole chapter depends on, and clause (63) of Section 2 is one line long: input tax credit means the credit of input tax. That is deliberately circular, and Section 2(62) resolves it. Input tax is the central, State, integrated or Union territory tax charged on any supply made to a registered person, including tax payable under reverse charge and excluding tax paid under the composition levy. Sections outside Chapter V, principally 34, 38, 41, 49, 50 and 155, govern how the credit is communicated, used, recovered and proved.

• Section 16: Eligibility and conditions for taking input tax credit, including the conditions in sub-section (2) and the 180-day payment rule.
• Section 17: Apportionment of credit between business and non-business or exempt use, and the blocked-credit list in Section 17(5).
• Section 18: Availability of credit in special circumstances, covering new registration, exit from composition and an exempt supply becoming taxable.
• Section 19: Taking input tax credit on inputs and capital goods sent to a job worker, and the one-year and three-year return periods.
• Section 20: Manner of distribution of credit by an Input Service Distributor, and registration as one has been compulsory since 1 April 2025.
• Section 21: Manner of recovery of credit distributed in excess by an Input Service Distributor.

Chapter V is six sections long, and only two of them were amended by Finance Act, 2025: Section 17(5)(d) by Section 124, in force 1 October 2025 and retrospective to 1 July 2017, and Section 20 by Section 125, with effect from 1 April 2025.

Most input tax credit disputes are decided outside Chapter V. Rule 37A and Section 41 reverse credit when a supplier defaults, and Section 50(3) charges interest only where wrongly availed credit has also been utilised. Section 155 puts the burden of proving eligibility on the person claiming the credit. Sections 49, 49A and 49B fix the order of set-off against liability, and Section 35 requires the credit register to be kept in your accounts.

The definition chain matters in one specific way. Section 2(59) defines an input as any goods other than capital goods, and Section 2(19) defines capital goods as goods whose value is capitalised in the books. Capital goods are therefore outside the definition of input, which is why Rule 43 exists as separate machinery from Rule 42 rather than as a sub-rule of it.

The procedure for input tax credit is contained in Rules 36 to 45 of the CGST Rules, 2017. They cover documents, reversal for non-payment, the banking-company option, ISD distribution, credit in special circumstances, transfer on merger, the common-credit formulas and job work. Six further rules restrict credit instead of allowing it. Rule 86A lets an officer block the electronic credit ledger and Rule 86B caps how much output liability may be discharged from it. Rule 88B computes interest on wrongly availed credit. Rules 88C and 88D make the taxpayer explain a mismatch before a demand is raised, and Rule 142B prescribes the intimation that precedes recovery under Section 79.

Ten rules, 36 to 45, prescribe how input tax credit is taken, and six more, 86A, 86B, 88B, 88C, 88D and 142B, allow the department to restrict it, price it, question it or take it back. Rule 86A is the mechanism by which a business loses credit it has already claimed, and Rule 88D is the rule behind Form DRC-01C, which the portal issues when the credit claimed in GSTR-3B exceeds GSTR-2B.

One notification made two of those pairs at once. Notification 38/2023-Central Tax of 4 August 2023 inserted Rule 88D with Form DRC-01C and Rule 142B with Form DRC-01D in the same instrument. The pairing is: Rule 88C to DRC-01B for a liability mismatch, Rule 88D to DRC-01C where credit claimed in GSTR-3B exceeds GSTR-2B, and Rule 142B to DRC-01D for recovery under Section 79. Each of the three allows seven days for a reply.

Rule 36(4) is in force. What was substituted out is the provisional-credit cap it used to impose, which allowed credit on invoices missing from the supplier's return up to a percentage of eligible credit, first twenty, then ten, then five. Notification 40/2021-Central Tax of 29 December 2021 substituted the sub-rule with effect from 1 January 2022. What stands in its place allows no margin at all. The invoice has to be furnished by the supplier in GSTR-1 and communicated to you in GSTR-2B, or there is no credit.

Thirteen forms are used for input tax credit, and this index gives each one with the rule or section that prescribes it. Form GST ITC-01 claims credit on stock when you first become entitled to it. Form GST ITC-02 transfers credit on a sale, merger or transfer of business, and ITC-02A transfers it to a new registration for a separate place of business. Credit is reversed through ITC-03 on leaving the regular scheme, and goods sent to a job worker are reported on Form GST ITC-04. GSTR-2B is the statement of credit available for the period, GSTR-6A is its equivalent for an Input Service Distributor, GSTR-3B Table 4 is where the credit is actually claimed, and GSTR-6 is how an Input Service Distributor passes it on. Forms DRC-01B, Form GST DRC-01C and DRC-01D are the intimations a taxpayer receives when something has gone wrong, and Form DRC-03 is what a taxpayer files in reply.

Credit enters your ledger through GSTR-3B Table 4 and, in special circumstances, through Form GST ITC-01. It goes out through Form GST ITC-03 or a reversal in Table 4(B). And it is questioned through Form GST DRC-01C, which the portal issues automatically when your claim in GSTR-3B exceeds your GSTR-2B.

GSTR-2B is the one form whose statutory basis changed. Finance Act, 2025, Section 127 deleted the words "an auto-generated statement" from Section 38 and substituted "a statement", and added a new clause allowing such other details as may be prescribed. That is the statutory basis for the Invoice Management System, and it is why a description of GSTR-2B as auto-generated is now a description of practice rather than a quotation of the Act.

The conditions in Section 16 are the same for goods, for services and for capital goods, and the three diverge only afterwards, on timing, on apportionment and on what happens on disposal. On goods, credit on a supply received in lots or instalments is available only when the last lot arrives. On services nothing turns on physical receipt, so the 180-day payment condition in Rule 37 does the work instead. On capital goods under Rule 43 the credit is taken in full at the start, and no depreciation may be claimed on the tax component under Section 16(3). Apportionment then runs monthly across sixty months, and Section 18(6) applies when the asset is sold. The divergence is in the timing and the apportionment, not in the entitlement to input tax credit itself.

Input tax credit is reversed under five rules. Rule 42 and Rule 43 cover exempt and non-business use, Rule 37 non-payment within 180 days, and Rule 37A the case where the supplier never filed his GSTR-3B. Rule 44 covers cancellation, exemption or a move to composition. Reconciliation is a separate process: the credit claimed in GSTR-3B Table 4 is compared with GSTR-2B, and an excess triggers Form DRC-01C under Rule 88D with seven days to explain it.

Finance Act, 2025 made five changes to input tax credit law, and two of them are retrospective to 1 July 2017. The Act's GST chapter runs from Section 121 to Section 134, and Sections 122 to 124 and 126 to 134 were brought into force on 1 October 2025 by Notification 16/2025-Central Tax of 17 September 2025.

• 17 September 2025, Notifications 9/2025 to 17/2025-Central Tax (Rate). The GST 2.0 rate notifications took effect on 22 September 2025, and no GST 2.0 instrument amended Section 16 or Section 17.
• Finance Act, 2025, s.124 (amending CGST s.17(5)(d)), in force 1 October 2025. The substitution is deemed effective from 1 July 2017 and Explanation 2 directs that the reference be so construed notwithstanding any contrary judgment, decree or order.
  "for the words 'plant or machinery', the words 'plant and machinery' shall be substituted and shall be deemed to have been substituted with effect from the 1st day of July, 2017"
  "notwithstanding anything to the contrary contained in any judgment, decree or order of any court, tribunal, or other authority"
  The Section 17(5) restrictions determine whether the credit is blocked, while the post-Safari Retreats construction rule determines the treatment of immovable property.
• Finance Act, 2025, s.126 (amending CGST s.34(2)), in force 1 October 2025. A supplier may not reduce his output tax liability on a credit note where the credit attributable to it "has not been reversed by the recipient", the recipient being registered.
• Finance Act, 2025, s.127 (amending CGST s.38), in force 1 October 2025. "An auto-generated statement" became "a statement", with a new clause for "such other details as may be prescribed".
• Finance Act, 2025, s.125 (amending CGST s.20), w.e.f. 1 April 2025. Section 20 was extended to cover services taxed under Sections 5(3) and 5(4) of the Integrated Goods and Services Tax Act, 2017. Input tax credit under reverse charge on an import of service is therefore now distributed by an Input Service Distributor. The commencement date for Section 125 is in the Act itself, which is why that section is absent from Notification 16/2025-Central Tax.
• Finance Act, 2025, s.121(i) (which would amend CGST s.2(61)): enacted, not yet in force. It would insert the same Integrated Goods and Services Tax Act words into the definition of Input Service Distributor. Under Section 1(2)(b) of that Act the whole of Section 121 is to be appointed by notification, and Notification 16/2025-Central Tax appointed only clauses (ii) and (iii) of it. Clause (i) has never been appointed, so those words are not yet part of the definition in Section 2(61).
• Finance Act, 2024, s.11 (substituting CGST s.2(61)) and s.12 (substituting s.20), in force 1 April 2025 by Notification 16/2024-Central Tax. Registration as an Input Service Distributor became compulsory, and this substitution is the operative last amendment to the Section 2(61) definition. This is the February 2024 Act, not the August one above, and it is the one that made the mechanism compulsory.
• Finance Act, 2025, ss.133 and 134, in force 1 October 2025. Paragraph 8(aa) was inserted into Schedule III for goods warehoused in a Special Economic Zone or Free Trade Warehousing Zone, deemed inserted from 1 July 2017, with Section 134 barring any refund of tax already collected.
• Finance (No. 2) Act, 2024, s.138, in force 1 November 2024. Section 74A was inserted, and it governs demands for wrongly availed credit for Financial Year 2024-25 onward whether or not fraud is alleged. Sections 73 and 74 now run only to Financial Year 2023-24.
• Section 118 of the Finance (No. 2) Act, 2024, in force 27 September 2024. Sections 16(5) and 16(6) were inserted with effect from 1 July 2017.
• 4 August 2023, Notification 38/2023-Central Tax. Rules 88D and 142B were inserted with Forms DRC-01C and DRC-01D.
• 29 December 2021, Notification 40/2021-Central Tax. Rule 36(4) was substituted with effect from 1 January 2022, ending the provisional-credit cap.
• 26 December 2019, Notification 75/2019-Central Tax. Rule 86A was inserted, giving an officer the power to block the electronic credit ledger.

Input tax credit law has been changed far more often by notification than by amendment. The Finance Acts supply the section text, but the commencement dates, the rule insertions and the procedural machinery are all made as Central Tax notifications, and the department's own reading of them is published as circulars. An instrument's date of issue and the date it came into force are frequently months apart, and both are given for each Central Tax instrument. A superseded instrument is shown with its status and its replacement named.

The two changes in this ledger that reach furthest back are both from Finance Act, 2025, and both came into force on 1 October 2025. Section 124 rewrote Section 17(5)(d) with retrospective effect from 1 July 2017, and Section 133 inserted paragraph 8(aa) into Schedule III from the same date. Section 134 bars any refund of tax already collected.

Input tax credit law has been changed far more often by notification than by amendment, and Rule 36(4) is the proof. It was inserted as a twenty per cent provisional cap on 9 October 2019, tightened to ten on 1 January 2020 and to five on 1 January 2021, and substituted out of existence on 1 January 2022, inside twenty-seven months.

"GST Council Notification No. 14/2021", cited for a rate change on solar modules, is not an instrument at all and is deliberately absent from this ledger. The GST Council recommends and does not notify, and a rate change is not a change to input tax credit law.

A reported GST Council Law Committee recommendation would allow input tax credit on vehicles purchased in a company's name for employee use and on group insurance. No official record of that recommendation has been published, the GST Council has not adopted it, and no notification, circular or Act gives it legal effect. Section 17(5) of the CGST Act would have to be amended by a Finance Act and the amendment brought into force before the position changed. Until then, Section 17(5)(a) and Section 17(5)(b) continue to govern staff cars and group insurance.

Is credit allowed on a car bought in the company's name for an employee?

Not today. A reported GST Council Law Committee recommendation would allow credit on a vehicle bought in the company's name for an employee's use, but no official record of that recommendation has been published and the Council has not adopted it. The proposal is not law; Section 17(5) must be amended by a Finance Act and the amendment brought into force before the position changes. Section 17(5)(a) governs input tax credit on a car today.

Can a company claim input tax credit on group insurance for its staff?

Not today. What is proposed is that credit be allowed on group insurance taken for staff. It comes from the same Law Committee recommendation, reported at the same time, and the Council has not decided. This is a recommendation and not law, and the same three steps would have to happen before it changed anything. Clause (b) of Section 17(5) sets out the employer-obligation exception that does exist.