Summary of Section 16 of GST Act with Eligibility Criteria

What is Section 16 Under CGST Act?

Section 16 of CGST ACT 2017 is concerned with the Input Tax Credit mechanism, which permits the assessee to offset the GST Input Tax Credit with the GST Output Tax Liability. The same shall assist in preventing the cascading effect of taxes and promote a seamless flow of credit via the whole supply chain.

Latest Update

• The Central Board of Indirect Taxes and Customs (CBIC) has provided clarification on how to apply Sections 16(5) and 16(6) of the Central Goods and Services Tax (CGST) Act, 2017. Read Circular

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Section 16 of CGST Act with Eligibility and Conditions to Avail ITC

The following is a description of the reference from the GST Law:

• Every enrolled individual will as per this pre-requisite and limitations as might be specified and in the way mentioned in section 49, be qualified to avail the credit of the input tax levy on any supply of goods or services or both to him which are used or planned to be utilized in the course or subsequent business operations and the stated amount will be credited to the electronic credit ledger of these individuals.

• Notwithstanding anything comprised in the same section, there is no enrolled individual will be qualified for the credit of any input tax for any goods or services supplied or both to him until,
  • He would be in the possession of the tax invoice or debit note provided via the supplier registered under this act, or these additional tax-paying documents as the same might be specified;
  • He would have obtained the goods or services or both [Explanation.— For the purposes of this clause, the same will be deemed that the enrolled individuals would obtain the goods or whatever the case may be, services (i). The goods are provided via the supplier to the recipient or any additional individual on the directive of these enrolled individuals, act as an agent or otherwise, prior to or at the movement of goods, either through the way of transfer of the documents of the title to the goods or otherwise, (ii) when a person receives services from a provider on the supplier’s instruction and on the registered person’s behalf.
  • As per the provision of section 41, the tax levy for the supply would have actually been paid to the government either in cash or through the usage of the ITC admission for the stated supply.
  • He would have filed the return under section 39.

In which the goods against the invoice would be obtained in lots or instalments, the registered individuals will be qualified for availing the credit on the receipt of the former lot or instalment:

Given that, a recipient would unable to pay to the supplier of goods or services or both, excluding the supplies on which tax would get levied on the reverse charge basis, the amount for the supply value including the tax liability to get paid within a duration of 180 days from the issue invoice date via the supplier, the amount identical to the input tax credit (ITC) claimed via the recipient will be added to his output tax liability including the interest, in a way as might be specified:

The recipient will be qualified to claim the Input tax on the payment incurred through him of the amount for the value of the supply of goods or services or both including the tax liability to be paid on it.

• The input tax credit on the aforementioned tax component is not permitted if the registered person has claimed depreciation on the tax component of the cost of capital goods, plant, and machinery under the requirements of the Income Tax Act 1961.

• After the due date of furnishing the return under section 39 for the month of September following the end of the financial year to which such invoice or invoice relating to such debit note pertains or filing of the related annual return, whichever is earlier, a registered person shall not be entitled to claim an input tax credit for any invoice or debit note for the supply of goods or services or both.

Given that the enrolled individual will qualify for ITC post the last date of filing the return under section 39 for September 2018 till the last date of flailing of return beneath the stated section for the month of March 2019 for any invoice or invoice associating with such debit note for the supply of goods or services or both made in the FY 2017-18, the components of which have been uploaded through the supplier under sub-section (1) of section 37 till the due date for filing the information under sub-section (1) of said section for the month of March.

“The Government through an amendment in Finance Act 2021 has introduced sec 16(2)(AA) of CGST ACT 2017 which states that the details in the invoice or debit note referred to in clause (a) have been filed via the supplier in the statement of outward supplies and such details have been communicated to the recipient of such invoice or debit note in a manner prescribed under section 37.”

An additional condition for the entitlement of Input Tax Credit is that the ITC can be claimed when it arises in GSTR-2A and GSTR-2B which is possible only when GSTR-1 Form has been filed via the Outward Supplier on the respective due dates.

So, now that we have researched the GST Law, let us grasp it via some questions and answers.

FAQs of Section 16 Under the CGST Act