Understanding section 16 of CGST act - Conditions for eligibility

Section 16 of CGST act is the act which deals with equalising GST Output Tax Liability with GST Input Tax Credit. The main aim of this section is to reduce the cascading effect of the taxes and encourage smooth credit flow throughout the whole supply chain.

Input tax credit is the major benefit available and section 16 of CGST act gives detailed information about the eligibility. Get help from Professional Utilities to solve any problem related to the GST.

Table Of Content

What is section 16 of CGST act ?

Section 16 of the CGST act is defined as the act which gives detail about the condition of the eligibility for availing Input Tax Credit. Businesses can use ITC to offset tax paid on goods and service with tax liability of supplies outward.

Eligibility and conditions for taking input tax credit

In section 49 every registered person in the course or furtherance of the business are required to avail input tax credit on the supply of the goods or services or both. The same amount is credited in the electronic credit ledger of such a person.
Unregistered person can not claim the input tax credit in supply of the goods and services or both unless -

Tax payer is in possession of the debit note or tax invoice or any other extra taxpaying documents are same to the supplier registered under this act.
Taxpayers should get the goods or services or both individuals would get the goods and services or both.
When goods are dispatched to the recipient by the supplier or any other person on the command of the registered person either acting as agent or otherwise, during or before the movement of the goods either by transfer of the documents or otherwise.
In the same way service provided to any person by the supplier on account or on the direction of the registered person.
As per section 41 provision tax on the such supplies are paid in cash or by the utilisation of ITC admission for the supply on which tax is levied.

Under section 39 return has been filled.

Where goods are received in instalments or lots on an invoice then credit can be claimed by the registered person on the receipt of the last instalment or lot.
Other than tax is payable on reverse charge basis, if recipient fails to supplier against the goods then amount of the value of the supply along with tax payable within the 180 days from the date of issue of the invoice based on the supplier's date of invoice issuance.
Under the provision of the Income Tax Act 1961, depreciation has been claimed by the registered person on the tax component of the capital goods. On tax component input tax credit will not be allowed.
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 furnishing the relevant annual return, whichever is earlier, a registered person shall not be entitled to claim input tax credit in respect of any invoice or debit note for supply of goods or services or both.

Conclusion

Section 16 of CGST act registered supplier issue valid tax invoice which act as evidence of goods and services have actually received and tax paid on the purchase. This is also done to ensure that real transaction tax credit is based. Payment has to be made within 180 days from the date of the invoice. The required return needs to be submitted monthly or quarterly. Taxes are paid by the supplier who has supplied the goods and services to the government.

Why Professional Utilities?

At Professional Utilities, we leverage our industry knowledge and expertise to help businesses navigate complex regulations, minimize risks, and optimize operations for maximum efficiency and profitability.

One Stop Corporate Solution

PAN India
Services

Free Expert
Assistance

Google Verified
Business

Dedicated Support
Staff

Money-Back
Guarantee

Frequently Asked Questions

What are the requirements and eligibility for Section 16 of CGST act of the input tax credit?

In section 49 conditions are prescribed the manner or way in which every registered person has the right to claim an input tax credit for any supplies of goods or services or both that are used or intended to be used in the course or advancement of their business, subject to any conditions and restrictions.

What types of input tax credits are eligible and ineligible?

ITC utilised for commercial reasons will be deemed eligible ITC, and those used for other purposes—aside from blocked credit, which is specifically granted separately—will not be eligible to claim as ITC. Whether the same is utilised for taxable or exempt supplies determines whether the ITC is eligible.

What does the CGST Act 2017's Section 16 2)(D mean?

Under Section 39: The fundamental requirements for claiming an input tax credit are laid out in Section 16(2) of the CGST Act 2017. It states clearly that, in addition to the other requirements, the recipient may only claim credit if the provider has actually paid tax to the government.

What consequences could come from claiming ineligible ITC?

It is clear from the above that if ITC is improperly claimed or used, a penalty is due. Therefore, even if ITC is improperly claimed but not used, a penalty of 10% or 100%, as appropriate, will be assessed.08-Oct-2022.