What Are the Input Tax Credit Rules Under GST?

Input tax credit under GST allows a registered business to 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) defines input tax credit, Section 16 prescribes the conditions and Section 17 specifies blocked credits. Section 18 covers the special circumstances, and Sections 20 and 21 govern Input Service Distributors. Rules 36 to 45 of the CGST Rules, 2017 contain the procedure, and Rules 86A, 86B, 88B, 88C and 88D govern restrictions on credit already claimed, calculation of interest and mismatch explanations. 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. Finance Act, 2025, Section 124 amended Section 17(5)(d), 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.

• 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: The claimant must hold a tax invoice, a debit note, a bill of entry or another document prescribed by Rule 36, with 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 the supplier's GSTR-1 into the recipient's GSTR-2B, the auto-generated statement used in practice. Section 16(2)(aa) permits credit only where the supplier has furnished those details and they have been communicated to the recipient.
• Business Use Only: The goods or services must be used, or intended to be used, in the course or furtherance of business, and no credit is available for personal consumption.
• Return Filed: The claimant 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, as apportioned under Rules 42 and 43.
• 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.

For a factory's purchase of machinery spares, all eleven listed requirements apply to the invoice. The buyer is registered as a regular taxpayer and holds a tax invoice with the particulars prescribed by Rule 36. The spares have been received, the supplier has paid the tax charged, and the invoice has been auto-populated in the buyer's GSTR-2B. The spares are used in the business rather than for personal consumption, and the buyer has filed the return for the period of availment. Payment to the supplier within a hundred and eighty days permits retention of the credit; otherwise, reversal is required under Rule 37 until payment is made. The buyer claims no depreciation on the tax component. The spares are used only for taxable output, so no apportionment is required, and the credit is claimed within the time limit.

Section 17(5) of the CGST Act, 2017 blocks credit on specified supplies even when they are used for business, subject to the exceptions in the applicable clause.

• 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

The availability of credit under Section 17(5) depends on the applicable clause and its exceptions. Those clauses have been the subject of 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) permits credit for certain earlier years, and Section 16(6) permits credit where registration was cancelled and later restored. Each financial year has its own date under the Section 16(4) time limit.

Chapter V of the CGST Act, 2017 governs input tax credit under Sections 16 to 21. Section 16 prescribes eligibility conditions, and Section 17 provides for apportionment of common credit and blocks specified credits. Section 18 governs credit on stock when circumstances change, and Section 19 governs 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) defines input tax credit as the credit of input tax. Section 2(62) defines input tax as 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 communication, utilisation, recovery and proof of credit.

• Section 16: Eligibility and conditions for taking input tax credit, including the conditions in sub-section (2) and the requirement to pay the supplier within 180 days.
• 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.

Rule 37A and Section 41 require reversal of credit when a supplier defaults, and Section 50(3) charges interest only where wrongly availed credit has also been utilised. Section 155 imposes the burden of proving eligibility on the person claiming the credit. Sections 49, 49A and 49B prescribe the order of set-off against liability, and Section 35 requires the claimant to keep the credit register in the accounts.

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 excluded from the definition of input. Rule 43 prescribes their common-credit apportionment separately from Rule 42.

Rules 36 to 45 of the CGST Rules, 2017 prescribe the procedure for input tax credit: documents, reversal for non-payment, the banking-company option, ISD distribution, credit in special circumstances, transfer on merger, common-credit formulas and job work. Rule 86A authorises an officer to restrict utilisation of the electronic credit ledger, and Rule 86B limits how much output liability may be discharged from it. Rule 88B prescribes calculation of interest on wrongly availed credit. Rules 88C and 88D require the taxpayer to explain a mismatch before a demand is raised, and Rule 142B prescribes the intimation that precedes recovery under Section 79.

Rules 36 to 45 prescribe how input tax credit is taken. Rules 86A, 86B, 88B, 88C, 88D and 142B govern ledger restrictions, interest, mismatch explanations and recovery. Under Rule 86A, an officer may restrict utilisation of credit already claimed. Rule 88D prescribes Form DRC-01C, issued by the portal when the credit claimed in GSTR-3B exceeds GSTR-2B.

Notification 38/2023-Central Tax of 4 August 2023 inserted Rule 88D with Form DRC-01C and Rule 142B with Form DRC-01D. Rule 88C prescribes DRC-01B for a liability mismatch; Rule 88D prescribes DRC-01C where credit claimed in GSTR-3B exceeds GSTR-2B; and Rule 142B prescribes DRC-01D for recovery under Section 79. Each of the three allows seven days for a reply.

Rule 36(4) remains in force. Notification 40/2021-Central Tax of 29 December 2021 substituted the sub-rule with effect from 1 January 2022, replacing the provisional-credit cap on invoices missing from the supplier's return. That cap had been twenty per cent, then ten per cent and then five per cent of eligible credit. Under the substituted sub-rule, the supplier must furnish the invoice in GSTR-1 and it must be communicated to the recipient in GSTR-2B; no provisional credit is permitted for an invoice missing from the supplier's return.

Input tax credit procedures use thirteen forms or statements. A registered person claims credit on stock through Form GST ITC-01 when first entitled to it. Form GST ITC-02 is used to transfer credit on a sale, merger or transfer of business, and ITC-02A to transfer 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, and GSTR-6A is the corresponding statement for an Input Service Distributor. The registered person claims credit in GSTR-3B Table 4, and an Input Service Distributor distributes it through GSTR-6. Forms DRC-01B, Form GST DRC-01C and DRC-01D are intimations concerning liability or credit mismatches or amounts recoverable under Section 79. Form DRC-03 is used for voluntary payment, including reversal of credit.

The registered person claims credit in GSTR-3B Table 4 and, in special circumstances, through Form GST ITC-01. Credit is reversed through Form GST ITC-03 or Table 4(B). Form GST DRC-01C is issued automatically by the portal when the credit claimed in GSTR-3B exceeds the amount in GSTR-2B.

Finance Act, 2025, Section 127 deleted the words "an auto-generated statement" from Section 38, substituted "a statement" and added a clause for such other details as may be prescribed. The amended provision is the statutory basis for the Invoice Management System. GSTR-2B remains auto-generated in practice, but Section 38 no longer uses that description.

The Section 16 eligibility conditions apply to goods, services and capital goods. The timing, apportionment and disposal provisions differ. Credit on goods received in lots or instalments is available only on receipt of the last lot. For services, receipt does not involve physical delivery of goods, and the 180-day payment condition in Rule 37 applies. Under Rule 43, credit on capital goods is taken in full initially. Section 16(3) disallows credit where depreciation is claimed on the tax component. Common-credit apportionment is calculated monthly over sixty months, and Section 18(6) applies when the asset is sold. These differences concern timing and apportionment; the eligibility conditions for input tax credit continue to apply.

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 amended input tax credit provisions, including changes with retrospective effect from 1 July 2017. Its GST chapter contains Sections 121 to 134. 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. The Finance Act enacted in February 2024 made ISD registration compulsory; it is distinct from the Finance (No. 2) Act enacted in August 2024.
• 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.

Finance Acts amend statutory provisions governing input tax credit. Central Tax notifications prescribe commencement dates, insert or amend rules and prescribe procedures; departmental circulars state the department's interpretation. An instrument's issue date and its commencement date are frequently months apart.

Finance Act, 2025, Sections 124 and 133 came into force on 1 October 2025 and have retrospective effect from 1 July 2017. Section 124 amended Section 17(5)(d), and Section 133 inserted paragraph 8(aa) into Schedule III. Section 134 bars any refund of tax already collected.

Rule 36(4) originally prescribed a twenty per cent provisional-credit cap from 9 October 2019. The cap was reduced to ten per cent from 1 January 2020 and five per cent from 1 January 2021. The cap was replaced when the sub-rule was substituted with effect from 1 January 2022, twenty-seven months after its introduction.

The GST Council recommends changes but does not issue tax notifications. A rate change on solar modules cannot be attributed to an instrument called "GST Council Notification No. 14/2021". A rate change is distinct from an amendment to the input tax credit provisions.

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?

A reported GST Council Law Committee recommendation would permit credit on a vehicle bought in a company's name for an employee's use. 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. The existing restrictions in Section 17(5)(a) govern input tax credit on a car.

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

Credit on group insurance taken for staff has been proposed in the same reported Law Committee recommendation. The Council has not decided on that recommendation. It has no legal effect unless the Council adopts it, Parliament amends Section 17(5) by a Finance Act and the amendment is brought into force. The existing employer-obligation exception is prescribed in clause (b) of Section 17(5).