Complete breakdown of ITC provisions under the CGST Act. From eligibility conditions and blocked credits to ISD distribution and time limits — every section explained with practical implications for businesses.
The Foundation Section
Recent Amendment: Section 16(4) amended: Time limit extended to 30th November of following year or date of filing annual return, whichever is earlier
Most Litigation-Prone Section
Recent Amendment: Clarification: CSR expenditure ITC is blocked under Section 17(5)(h) as per CBIC circular
Transition & Conversion Credit
Recent Amendment: Rule 44A introduced for ITC reversal on capital goods in case of supply becoming exempt
Depreciation & Credit Interaction
Recent Amendment: No major amendment post-2020
Input Service Distributor Mechanism
Recent Amendment: Mandatory ISD registration effective 01 April 2025 — all inter-branch service distributions must go through ISD
Rules for ISD Credit Distribution
Recent Amendment: Aligned with mandatory ISD provisions from April 2025
These items are specifically blocked from ITC, regardless of business use (with limited exceptions)
Motor vehicles & conveyances
Exception: Used for transport of persons (≥13 seats), transportation of goods, making taxable supply of such vehicles, driving training
Food & beverages, outdoor catering
Exception: Obligatory under any law for the time being in force, or inward supply used for outward taxable supply of same category
Beauty treatment, health services, cosmetic/plastic surgery
Exception: Inward supply used for outward taxable supply of same category, or obligatory under law
Club memberships, fitness
Exception: Used for making outward taxable supply of same category
Rent-a-cab, life/health insurance
Exception: Government obligation or outward taxable supply of same category; effective Oct 2024: health insurance for employees covered under ESI may be claimable
Travel benefits to employees on vacation (LTC)
Exception: None — fully blocked
Works contract for construction of immovable property (except plant & machinery)
Exception: Used for further supply of works contract service
Construction of immovable property on own account
Exception: Plant & machinery are NOT blocked — ITC available
Composition scheme taxpayers
Exception: None — composition dealers cannot claim any ITC
Personal consumption
Exception: None — fully blocked
Goods lost, stolen, destroyed, written off, gifted (free samples >₹50k)
Exception: Insurance claim settled — ITC available if insurer settles the claim
Tax paid under Section 74/129/130 (fraud/detention/confiscation)
Exception: None — fully blocked
GST launch — ITC available on self-declaration basis
Rule 36(4): 20% cap on ITC not reflected in GSTR-2A
Cap reduced to 5% provisional ITC
Section 16(2)(aa): ITC only if reflected in GSTR-2B
No provisional ITC — 100% matching with GSTR-2B required
Mandatory ISD registration for multi-state businesses
Section 16(4) time limit relaxation for FY 2017-18 to 2020-21 claims
Four mandatory conditions: (1) Possession of valid tax invoice/debit note, (2) Receipt of goods/services, (3) Tax actually paid to Government by supplier, and (4) Furnishing of return (GSTR-3B). Additionally, from 2022, the invoice must be reflected in GSTR-2B and payment must be made to supplier within 180 days.
Under Section 16(4), ITC for any financial year must be claimed by the earlier of: (a) 30th November of the following financial year, or (b) the date of filing annual return (GSTR-9). For example, ITC for FY 2025-26 must be claimed by 30 November 2026 or GSTR-9 filing date, whichever is earlier.
Generally blocked under Section 17(5)(a). However, ITC IS available for: (1) vehicles with seating capacity >13 persons, (2) vehicles for transportation of goods, (3) vehicles for imparting training on driving, (4) vehicles held for further supply (car dealers), and (5) vehicles for transportation of passengers (taxi services).
Under the second proviso to Section 16(2), if payment is not made within 180 days from invoice date, the ITC claimed must be reversed and added to output tax liability along with interest at 18% p.a. The credit is re-available once payment is eventually made to the supplier.
No. Section 17(5)(c) and (d) block ITC on works contract services and goods/services used for construction of immovable property on own account. However, 'plant and machinery' is explicitly excluded from this restriction — ITC on plant & machinery is fully available.
Input Service Distributor (ISD) is a mechanism under Sections 20-21 for distributing ITC of input services received at the head office to branch offices in proportion to turnover. From April 2025, ISD registration is MANDATORY for all businesses with multiple GSTINs if they receive common input services at one location and need to distribute credit.
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