GST Input Tax Credit: Conditions, Blocked Credits and Disputes

Input tax credit under GST requires four cumulative conditions: possession of a valid tax invoice, receipt of the goods or services, tax actually paid to the government by the supplier, and the recipient having furnished the relevant return. Credit must be claimed by 30 November following the end of the financial year, or the date of filing GSTR-9, whichever is earlier.

The four conditions, and why one causes most trouble

The conditions under Section 16 of the CGST Act are cumulative, not alternative. Three are within the recipient’s control — invoice, receipt of supply, and filing your own return.

The third is not. Credit depends on the supplier having actually paid the tax to the government. A recipient who has paid its supplier in full, received the goods, and holds a proper invoice can still lose the credit because the supplier defaulted. This asymmetry is the single largest source of ITC litigation in India.

There is also a payment condition: where the recipient does not pay the supplier within the prescribed period, credit is liable to be reversed with interest, and restored on subsequent payment.

The 30 November deadline

Under Section 16(4), credit for a financial year cannot be claimed after 30 November of the following financial year, or the date of filing the annual return, whichever is earlier. For FY 2025-26 invoices, the cut-off is 30 November 2026.

For current years this operates as a hard cut-off: unclaimed credit beyond it cannot be recovered through the annual return, and filing GSTR-9 early brings the deadline forward.

There is one important qualification, and it is retrospective rather than prospective. Section 16(5) validates credit for FY 2017-18 to FY 2020-21 where the return claiming it was filed by 30 November 2021, notwithstanding the Section 16(4) time limit. Section 16(6) deals with taxpayers whose registration was cancelled and subsequently revoked. Where a demand was raised purely on a Section 16(4) time-bar for those years, these two provisions are the first thing to check.

Blocked credits

Section 17(5) blocks credit on specified inward supplies regardless of business use. The categories generating the most disputes:

Motor vehicles, subject to exceptions for further supply, passenger transport and driving instruction, with seating capacity thresholds mattering.

Construction of immovable property on own account, including where capitalised. This was the most litigated of the blocked credits, and the position has now been closed off. In Safari Retreats, the Supreme Court read the phrase “plant or machinery” in Section 17(5)(d) as permitting a functionality test, which opened the door to credit on buildings that functioned as plant. The Finance Act, 2025 then substituted “plant and machinery” for “plant or machinery” in Section 17(5)(d) with retrospective effect from 1 July 2017, aligning the wording with the defined expression used elsewhere in Section 17 and displacing that reading. Planning built on the functionality argument should be revisited.

Employee-related supplies — food and beverages, health services, club memberships, rent-a-cab — subject to the exception where provision is obligatory under another law. That exception is narrower than commonly assumed.

Goods lost, stolen, destroyed, written off, or disposed of by way of gift or free sample. Write-offs of obsolete inventory are a recurring exposure because the reversal obligation is often missed.

Why claims get disputed

Notices cluster around a small number of patterns: mismatch between credit claimed and credit appearing in auto-populated data; credit claimed on blocked categories, typically construction or employee-related; credit claimed beyond the 30 November cut-off; failure to reverse credit attributable to exempt supplies; and non-reversal on write-offs and free supplies.

Building a defensible position

Reconcile monthly, not annually. Annual reconciliation discovers supplier defaults after the commercial leverage to fix them has gone.

Escalate supplier defaults commercially and in writing. Contractual protection — a right to withhold the tax component pending evidence of filing — is more effective than any post-facto argument.

Document the business-use case for anything near a blocked category before claiming, not after receiving a notice.

Track the 30 November deadline per financial year as a hard stop.

Maintain a reversal register for write-offs, free samples and exempt-supply apportionment.

Related reading

• the current GST slab structure — New GST Slabs 2026: 5%, 18% and 40% Explained
• responding to a GST notice — How to Respond to a GST Notice: A Practical Checklist
• annual return reconciliation — GSTR-9 and GSTR-9C Reconciliation Mismatches
• reverse charge mechanism — GST Reverse Charge Mechanism: A Practitioner’s Checklist
• rate changes and existing contracts — GST Rate Change: Contracts and Transitional Stock

Sources

• Sections 16 and 17(5), CGST Act, 2017 as amended — cbic.gov.in