If you’ve ever tried to claim ITC in GST, you already know one thing—Section 16 is the heart of everything. This section tells you who can take ITC, when you can take it, and what conditions you must satisfy before you even think about claiming it. It looks simple on paper, but the moment you actually start working with invoices, GSTR-2B mismatches, 180-day rules, debit notes, or goods received in parts, things suddenly become much more complicated.
This blog breaks down Section 16 in the simplest way possible.
Let’s get straight into it.
1. Who Can Claim ITC? (Section 16(1))
The law starts with one basic rule: you must be a registered person and you must be using the goods/services for business.
- That’s it. If you're unregistered → no ITC.
- If you're buying something for personal use → no ITC.
✔ Example:
A registered manufacturer purchases raw material for the factory. Since the raw material is used for business, ITC is perfectly eligible.
But if the same person buys a refrigerator for home → absolutely no ITC.
So the first condition is quite straightforward.
2. The Four Mandatory Conditions for ITC (Section 16(2))
This is where the real Section 16 starts. The law clearly says that unless all four conditions are satisfied, you cannot claim ITC.
Let’s look at these four conditions one by one.
Condition 1: Possession of Tax Invoice or Debit Note
Simply put, you need a valid document.
GST law accepts:
- Tax invoice
- Debit note
- Bill of entry
- ISD invoice
- RCM self-invoice
If the invoice is missing → no ITC.
✔ Example:
A taxpayer receives 100 items and gets a valid invoice from the supplier. Since the invoice is available, Condition 1 is fulfilled.
Condition 2: You Must Actually Receive the Goods or Services
This sounds obvious, but GST has clearly defined what “receipt” means.
You are treated as having received the goods/services when:
- You physically receive them, or
- They are delivered on your direction (Bill-to-Ship-to), or
- They are delivered to your job worker, or
- You receive part of the goods in lots.
✔ Example (Lots / Batches):
A taxpayer buys 500 units of raw material but receives them in 5 batches of 100 units each. ITC can be claimed only when the last lot is received.
People often forget this rule.
Condition 3: Tax Must Be Paid to the Government
This condition is slightly tricky because you don’t control this part. Your supplier must:
- File GSTR-1
- Pay GST through GSTR-3B
Only then ITC appears in your GSTR-2B.
If the supplier does not pay GST, your ITC will not reflect in GSTR-2B, and you cannot claim it.
✔ Example:
If a supplier uploads the invoice in GSTR-1 but fails to file GSTR-3B, the ITC will not appear in the recipient’s GSTR-2B. Recipient cannot take ITC until supplier files 3B.
Condition 4: Recipient Must File Their GSTR-3B
Even if everything else is fine, ITC is allowed only when you file GSTR-3B.
This is the last condition.
3. ITC Only on GSTR-2B — Not GSTR-2A
GST authority clearly highlights a very important point:
✔ ITC should be taken only based on GSTR-2B, not on GSTR-2A.
Why?
- GSTR-2A is dynamic (keeps changing).
- GSTR-2B is static (freezed for the month → final source of ITC).
✔ Example:
A supplier uploads an invoice late.
- In GSTR-2A: it might appear for a previous month.
- In GSTR-2B: it appears for the month in which supplier files the return.
ITC is allowed only in that GSTR-2B month.
This is the Government’s official position.
4. Special Cases Under Section 16(2)
Now let’s go detailed examples and explanations.
A. Bill-to-Ship-to Situation
This is a classic supply scenario covered by Section 16.
✔ Example:
A (Delhi) places an order on B (Mumbai) and instructs B to ship goods to C (Kolkata).
- C actually receives the goods.
- But A is considered to have received the goods legally.
So A can claim ITC even without physically receiving goods.
This is one of the most important rules every GST student remembers.
B. Goods Delivered to Job Worker
- A principal can send goods directly to a job worker.
- Even if the principal never physically receives them.
This is treated as recipient receiving the goods.
So ITC is allowed.
C. Receipt in Lots or Installments
This one is straightforward.
✔ Example:
Goods purchased: 1000 units Received in: 4 installments (250 each)
ITC can be taken only when all 1000 units have been received.
If only 750 are received, no ITC.
5. The Famous 180-Day Vendor Payment Rule (Section 16(2)(d))
This is probably the most misunderstood part.
The rule says:
If you do NOT pay your vendor the invoice value + GST within 180 days, then:
- ITC must be reversed
- Interest must be paid
- You can re-avail ITC later when you finally make the payment
✔ Example:
Suppose:
- Invoice value: ₹1,00,000
- GST: ₹18,000
- Total: ₹1,18,000
If you pay your vendor only after 190 days, then:
- Reverse ITC of ₹18,000
- Pay interest for 10 days
- After making full payment, you can re-avail the same ₹18,000
6. Self-Invoice in RCM Cases
For services under RCM, ITC conditions slightly change.
- You must create a self-invoice.
- You must pay tax in cash.
- Then you can claim ITC.
✔ Example:
Advocate services taken by a company → RCM applicable. Company must:
- Issue self-invoice
- Pay GST in cash
- Then claim ITC in the same month
7. Time Limit to Claim ITC — Section 16(4)
The Government has changed this rule many times,
You can claim ITC up to the earlier of:
✔ 30th November following the end of the financial year
or
✔ Date of filing the annual return (GSTR-9)
Whichever is earlier.
✔ Example:
- Invoice date: 15 February 2024
- GSTR-9 filed on: 25 October 2024
- Latest date: 30 November 2024
ITC can be claimed up to 30 November 2024. After that → not allowed.
8. Time Limit for Debit Note ITC (Important Change)
The authority explains the updated rule:
- Earlier, the date of the original invoice was considered.
- Now, only the debit note’s date is considered.
✔ Example:
- Original invoice: March 2022
- Debit note: October 2023
ITC can be claimed based on October 2023 debit note date.
9. Supplier Not Filing GSTR-3B — What Happens?
This is specifically explained by authority.
If supplier does NOT:
- File GSTR-1 on time
- File GSTR-3B
- Pay GST
Then:
- Invoice will not appear in GSTR-2B
- You cannot claim ITC
- If you claim ITC, it must be reversed
- Supplier will face notices, and you might also face scrutiny
✔ Example:
- Supplier uploads invoice in GSTR-1 but fails to file GSTR-3B.
- Recipient will NOT see invoice in GSTR-2B.
No ITC allowed.
10. ITC on Goods/Services Used Partly for Business
If something is used:
- partly for business
- partly for personal use
then ITC allowed only for business portion.
✔ Example:
- Car used 60% for business, 40% personal.
- Only 60% ITC allowed (if car ITC is not otherwise blocked).
11. ITC Reversal on Credit Notes
If a supplier issues a credit note:
- Your ITC gets reduced
- You must reverse proportionate ITC in GSTR-3B
Example: Supplier issued a ₹10,000 credit note → reduce ITC on GST portion accordingly.
12. Blocked ITC Claimed by Mistake (Reversal & Re-Availment)
Authority also mentions cases where ITC is wrongly claimed.
- If an ineligible ITC is claimed → reverse with interest
- If later you realise the error → cannot re-avail blocked ITC
- Only eligible ITC can be re-availed
✔ Example:
- ITC claimed on food & beverages (blocked under Sec 17(5)).
- Taxpayer must reverse the entire amount with interest.
13. Real-World Issues
The authority highlights a few common mistakes businesses make:
❌ Claiming ITC based on photocopy of invoice
(Only original or authenticated digital invoice allowed)
❌ Claiming ITC on items not used for business
(Example: office AC used in owner's home)
❌ Claiming ITC on invoices not reflecting in GSTR-2B
(This is the biggest cause of disputes)
❌ Vendors filing GSTR-1 but not filing GSTR-3B
(Result: ITC not appearing in 2B)
14. Summary of Section 16
Section 16 says:
To claim ITC, you must have:
- Valid invoice
- Actual receipt of goods/services
- Supplier must pay tax to Government
- Recipient must file GSTR-3B
- Payment to vendor within 180 days
- ITC claim before 30 November deadline
- Debit note ITC as per updated rule
- ITC only from GSTR-2B
- Reversal rules properly followed
- No ineligible or blocked ITC
Final Thoughts
Section 16 looks small, but it controls everything about ITC. If you understand this one section properly, you can avoid:
- Wrong ITC claims
- Notices
- Reversals
- Interest liabilities
- Audit objections
- Vendor-related disputes
In GST, ITC is not just a benefit—it’s a responsibility.
