GST Input Tax Credit & Blocked Credits

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  • Last Updated on 1 December, 2021

Topics covered in this article are as follows:

1. Definitions of ITC (Input Tax Credit) & few terms used

2. Eligibility and conditions for taking Input Tax Credit (ITC) (Section 16 read with Rules 36 & 37 of CGST Rules)

2.1 New restriction imposed on the availment of ITC with effect from 9-10-2019 (Rule 36(4) in CGST Rules, 2017)

2.2 Time limit or deadlines for availing ITC

2.3 Restriction on the availment of ITC if the payment of invoice is not made within 180 days by the registered recipient (Rule 37 of CGST Rules)

3. Apportionment, determination & reversal of ITC and Blocked Credit (Section 17 read with rules 38, 42 & 43 of CGST Rules)

3.1 Determination & Reversal of Input Tax Credit in respect of inputs & input services (Rule 42 of CGST Rules)

3.1.1 Reversal of ITC in case the goods or services are being used for business & personal purposes.

3.1.2 Reversal of ITC in case the goods or services are being used for providing the taxable and exempt supplies.

 GST Input Tax Credit & Blocked Credits

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1. Definitions of ITC (Input Tax Credit) & few terms used

Input Tax Credit: Input Tax Credit means the tax paid by the Registered Recipient of goods or services in the form of Central Tax (CGST), State Tax (SGST) or Union Territory Tax (UTGST) & Integrated Tax (IGST). Such tax is charged by the Registered Supplier at the time of sale of goods or services made to any Registered Recipient. It means this concept is applicable only for the buyer of goods or the recipient of services who has taken the GST registration.

ITC also includes: –

(a) the GST paid on reverse charge basis by the registered recipient of supply on certain specified goods or services such as GTA, Advocate services etc.

(b) IGST paid on import of goods

For Example: –

Janta Enterprises is a manufacturer and registered in the GST as regular taxpayer. GST payable on the sale of its final product is Rs. 450 and GST paid on the purchase made by Janta Enterprises is Rs. 300 Now Rs. 300 is called the ITC of Janta Enterprises, they can claim the ITC of Rs. 300 and they will need to deposit only Rs. 150 (450-300) as GST payable to the Government.

Registered Supplier: A person who has taken a GST registration and supplying the goods or services or both.

Registered Recipient: A person who has taken a GST registration and purchasing the goods or availing the services or both.

2. Eligibility and conditions for taking Input Tax Credit (ITC) (Section 16 read with Rules 36 & 37 of CGST Rules)

The ITC can be claimed by any Registered Recipient only after fulfilling all the following conditions [i.e. from point (a) to (g)] –

(a) The Registered Recipient must be in possession of the requisite documents as follows: –

      • Tax invoice or debit note issued by the registered supplier,
      • Reverse charge invoice (In case of supplies on which recipient is liable to pay tax under reverse charge), which is generated & documented by the recipient himself,
      • Bill of entry (In case of import of goods), proving the payment of GST on import,
      • An Input Service Distributor Invoice or ISD credit note or any document issued by an ISD.

Please Note that the any of the above-mentioned documents must contain at least all the following five particulars for availing the ITC: –

      • The amount of tax charged,
      • Description of goods or services,
      • Total value of supply,
      • GST No. of the supplier and recipient,
      • Place of supply in case of transaction happened between two different States.

(b) The registered recipient has received the goods or services or both. Please note here that without actual or deemed receipt of goods/services, recipient cannot claim the ITC in his returns.

      • For the purpose of this clause, it shall be deemed that the goods have been received by the registered recipient where the supplier has delivered the goods to any other person on the instructions of that registered recipient, before or during the movement of goods. (Bill to ship to model)

For Example:

“A” (Haryana) orders “B” (Rajasthan) to send the goods directly to C (Delhi). Here, the goods shall be deemed to be received by A (Haryana) as soon as the goods have been delivered by B (Rajasthan) to C (Delhi).

      • It shall be deemed that the registered recipient has received the services where the services have been provided by the supplier to any person on the direction of and on account of such registered recipient.
      • Where the goods against an invoice are received in lots or instalments, ITC can be claimed only after receiving the last lot.

For example: “A” (Haryana) purchased the goods from “B” (Rajasthan). “B” (Rajasthan) issued an invoice of Rs. 50,00,000 including GST dated 27-9-2019. Due to the high quantum of goods, “B” (Rajasthan) sent the goods to “A” (Haryana) in lots.

The 1st lot of the goods purchased was received by “A” (Haryana) on 29-9-2019

The 2nd lot of the goods purchased was received by “A” (Haryana) on 30-9-2019

The 3rd and last lot of the goods purchased against the invoice was received by “A” (Haryana) on 2-10-2019.

Hence, in the above example, “A” (Haryana) can claim the ITC on the invoice dated 27-9-2019 in the GST return for the month of Oct 2019, since the last lot was received on 2-10-2019.

(c) The registered supplier has paid the GST charged from the registered recipient to the government either in cash or through utilisation of eligible ITC.

(d) The registered supplier has filed its outward supply return (e.g. GSTR-1 in case of regular taxpayer) and the input invoices & debit notes are properly reflecting in the GSTR-2A of the registered recipient.

(e) The registered recipient has filed the requisite GST returns (Kindly refer GST returns chapter for the different types of returns)

(f) No ITC would be allowed on the capital assets if the depreciation is claimed on the tax part also.

For example: An asset is purchased for Rs. 1,18,000 (Basic value is Rs. 1,00,000 & GST charged @ 18% i.e. Rs. 18,000)

In this case: –

If the depreciation is claimed under income tax on Rs. 1,18,000, no ITC would be allowed.

If depreciation is claimed on Rs. 1,00,000, ITC of Rs. 18,000 would be allowed.

(g) A person who has taken GST registration under composition scheme, cannot claim input tax credit.

(h) ITC can be claimed by the registered recipient in respect of only those goods or services which are used or intended to be used in relation to his business.

(i) No ITC can be claimed in respect of any tax that has been paid for the reason of demand on account of fraud, deliberate misstatement or concealment of facts or ceasing of goods.

2.1 New restriction imposed on the availment of ITC with effect from 9-10-2019 (Rule 36(4) in CGST Rules, 2017)

This new rule was inserted by the government through CGST (Sixth Amendment) Rules, 2019 and it is effective from 9th of October, 2019.

Eligibility before 9-10-2019: Before this rule, the registered recipients used to avail the whole eligible input on the basis of their input invoices against goods or services received during the tax period.

Eligibility from 9-10-2019 to 31-12-2019: Now with effect from 9-10-2019, the registered recipient can only avail the eligible input which is 20% of the eligible input reflecting in its GSTR-2A for that tax period in addition to the eligible input reflecting in the GSTR-2A.

(Eligible ITC existing in 2A + 20% of the eligible ITC existing in 2A) = Provisional ITC maximum allowable in a tax period

Eligibility from 1-1-2020 onward: Now with effect from 1-1-2020, the registered recipient can only avail the eligible input which is 10% of the eligible input reflecting in its GSTR-2A for that tax period in addition to the eligible input reflecting in the GSTR-2A.

(Eligible ITC existing in 2A + 10% of the eligible ITC existing in 2A) = Provisional ITC maximum allowable in a tax period

Eligibility from 1-1-2021 onwards: Now with effect from 01-01-2021, the registered recipient can only avail the eligible input which is 5% of the eligible input reflecting in its GSTR-2A for the tax period in addition to the eligible input reflecting in the GSTR-2A.

(Eligible ITC existing in 2A + 5% of the eligible ITC existing in 2A) = Provisional ITC maximum allowable in a tax period.

Eligible Input: Eligible input means the input which is fulfilling all the eligibility conditions as prescribed above excluding the blocked credit under section 17(5) and the reversals required under rules 42, 43 & 37 if any.

Please note that the said condition shall apply cumulatively for the period February, March, April, May, June, July and August, 2020 and the return in FORM GSTR-3B for the tax period September, 2020 shall be furnished with the cumulative adjustment of input tax credit for the said months in accordance with the condition above.

It means that the 10% restriction on ITC can be worked upon cumulatively for the months (Feb, Mar, Apr, May, Jun, Jul, Aug 2020) in the GSTR-3B of Sep 2020 month.

Some conditions of this new rule: –

  • This restriction would be applicable only on the input of invoices and debit notes issued by the supplier for a tax period.
  • The input of reverse charge invoices, import of goods and ISD invoices can be availed in full if eligible. (Exclusions)
  • For the purpose of calculating the eligible ITC as per this new rule, the GSTR-2A for a tax period should be taken as updated till the due date of GSTR-1 of the supplier for that tax period (Currently 11th of the next month)

For Example:-

Case Eligible ITC as per books Eligible ITC reflected in 2A Permissible ITC (Eligible ITC in 2A + 20%) Actual ITC which can be claimed
I 10,00,000 5,00,000 6,20,000 6,20,000
II 10,00,000 7,50,000 9,00,000 9,00,000
III 10,00,000 8,50,000 10,20,000 10,00,000*

*Please note that the actual ITC which can be claimed cannot exceed the eligible ITC as per books.

Now if the balance input is reflected in GSTR-2A of further tax periods, the calculation of the eligible ITC for those inputs would be as follows:-

Case Balance Eligible ITC as per books Balance Eligible ITC reflected in 2A (out of balance left) Permissible ITC (Eligible ITC in 2A + 20%) Actual ITC which can be claimed
I 3,80,000 3,00,000 3,60,000 3,60,000
II 1,00,000 90,000 1,08,000 1,00,000
III NIL 1,20,000 1,44,000 NIL*

*Please note that the actual ITC which can be claimed, cannot exceed the balance eligible ITC as per books.

2.2 Time limit or deadlines for availing ITC

A registered person cannot take the input tax credit after the following date: –

  • Due date of filing of GST Return (return in which ITC is availed i.e. GSTR-3B for regular taxpayers) for the month of September following the end of financial year to which the ITC relates. (See note No. 1 below)
  • Actual Date of furnishing of GST annual return (i.e. GSTR-9)

Whichever is earlier…

For Example: – An input of Rs. 10,000 belongs to Jan 2019, which was not taken in the GST

return of that particular month. Now the last date up to which, this input can be taken is as follows: –

(a) Due date of filing of GST return of September following the end of financial year to which the ITC relates means: – Input relates to year 2018-19, hence last date to file September 2019-20 GST return is: – 20th Oct 2019 (GSTR-3B)

(b) Actual date of furnishing of annual return: – the actual date on which annual return of F.Y. 2018-19 is filed, let us assume on 11th Nov 2019.

Hence, in this case the last date of taking GST input of FY 2018-19 would be 20th Oct 2019. (Earlier of 20th Oct 2019 & 11th Nov 2019)

NOTE NO. 1

For finding that ITC is related to which FY, the following elements shall be considered: – 

(i) For ITC on invoice: Date of that invoice

(ii) For ITC on Debit Note: Date of the invoice for which such debit note is issued.

Point to be noted

“Please note that via special order, Govt. has extended the last date to avail ITC for the FY 2017-18 to 20th March 2019 instead of 20th Oct 2018.”

Amendments effective from 1st January, 2021

The date of the debit note will be considered for availing input tax credit. 

With this amendment, ITC in respect of a debit note issued in, say, FY 2019-20 for an invoice of FY 2018-19 can now be claimed by the recipient by the due date of September 2020 return or the date of filing annual return of FY 2019-20, whichever is earlier.

Relaxation notified by the Government during pandemic of COVID-19, for the deadlines already prescribed earlier in the Act & rules in relation to the GST compliances

In case, 

  • the deadline in the above case (4.2.2) falls during the period from 20th March 2020 to 30th August 2020 and, 
  • where compliance of such action has not been made within such time,

Then the time limit for the compliance of such action shall be extended up to 31st August 2020.

Relaxation for the second wave of COVID-19 pandemic

In case, 

  • the deadline in the above case falls during the period from 15th April 2021 to 30th May 2021 and, 
  • where compliance of such action has not been made within such time.

Then the time limit for the compliance of such action shall be extended up to 31st May 2021.

2.3 Restriction on the availment of ITC if the payment of invoice is not made within 180 days by the registered recipient (Rule 37 of CGST Rules)

If the recipient of *goods or services or both does not pay the invoice amount to the supplier within 180 days of the date of invoice, the ITC availed already on that particular invoice will have to be added to the output tax liability and the interest shall have to be paid also.

*Here reverse charge inward supplies are not included in goods or services. It means that the condition of 180 days is not applicable in case of inward supplies on which RCM is applicable.

For Example: –

A Ltd. purchased goods from B Ltd. of Rs. 1,18,000 (Basic Rs. 1,00,000 & Rs. 18,000 tax thereon) against invoice dated 1st June 2018. Here, if A Ltd. does not pay the invoice amount to B Ltd. within 180 days of the date of invoice (i.e. till 27th Nov 2018), the Input of Rs. 18,000 will have to be added to the Output tax liability of A Ltd. along with interest @ 18% p.a. in the GST return of Nov 2018 month.

Points to be noted
  • Interest shall be calculated @ 18% p.a. from the date of availing the ITC on such supplies till the date when the ITC added to the output tax liability as provided above.
  • Please note that the ITC added to the output tax liability on account of above-mentioned case can be re-claimed once the payment of the invoice is made to the supplier. In this case the time limit as specified in para No. 6.2.2 will not be applicable.

“It means that the re-claim of ITC on payment of invoice value to the supplier can be claimed in any month ignoring the maximum time limit allowed.”

In the above example, if A Ltd. made the payment of Rs. 1,18,000 (Invoice Value) to B ltd on 25th Nov 2019, the ITC which was added to the output tax liability earlier can be reclaimed in the GST return for the month of Nov 2019 ignoring the deadline to claim ITC i.e. 20th Oct 2019.

Relaxation notified by the Government during pandemic of COVID-19, for the deadlines already prescribed earlier in the Act & rules in relation to the GST compliances

In case,

  • the deadline in the above case (4.2.3) falls during the period from 20th March 2020 to 30th August 2020 and, 
  • where compliance of such action has not been made within such time,

Then the time limit for the compliance of such action shall be extended up to 31st August 2020.

Relaxation for the second wave of COVID-19 pandemic

In case,

  • the deadline in the above case falls during the period from 15th April 2021 to 30th May 2021 and, 
  • where compliance of such action has not been made within such time.

Then the time limit for the compliance of such action shall be extended up to 31st May 2021.

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3. Apportionment, determination & reversal of ITC and Blocked Credit (Section 17 read with rules 38, 42 & 43 of CGST Rules)


3.1 Determination & Reversal of Input Tax Credit in respect of inputs & input services (Rule 42 of CGST Rules)

Here in this topic, we are going to explain the following: –

3.1.1 Reversal of ITC in case the goods or services are being used for business & personal purposes.
3.1.2 Reversal of ITC in case the goods or services are being used for providing the taxable and exempt supplies.

Common ITC: – It means the ITC on such goods or services which are commonly used for business & personal purpose and commonly used for providing the taxable & exempt supplies.

3.1.1 Where the goods or services on which GST is charged, are used for the following purposes: – (1st Case)
  • Business purpose
  • Personal purpose

In this case the ITC would be allowed & reversed as per the following rules: –

ITC is used for Business Purpose Only Full ITC shall be allowed
ITC is used for Personal Purpose Only Full ITC shall be reversed
ITC is used for Both the Purposes
  • The proportionate ITC for Business Purpose shall be allowed
  • The proportionate ITC for Personal Purpose shall be reversed

For Example: – A Ltd. is a trader, the total ITC on goods or services purchased is Rs. 1,00,000. Now there are three conditions on availing the ITC on such goods & services: –

  • Fully used for business purpose: ITC of Rs. 1,00,000 is allowed
  • Fully used for personal purpose: ITC of Rs. 1,00,000 is to be reversed
  • 60% used for business purpose & 40% used for personal purpose: – ITC of Rs. 60,000

Answer: (1,00,000 × 60%) is allowed and ITC of Rs. 40,000 (1,00,000 × 40%) is to be reversed.

Points to be noted

  • The ITC for the above terms shall be determined at the invoice level (if possible). The calculations shall be done separately for ITC of CGST, SGST & UTGST and IGST.
  • Proportion can be used only if it is identifiable that what is the proportion of using the ITC for business & personal purpose.
  • If the common credit is used partly for business purpose and partly for non-business purpose, the non-business purpose ITC shall be equal to 5% of common credit.
3.1.2 Where the goods or services are used for providing the following supplies: – (2nd Case)
  • Taxable Supplies (including Export supplies)
  • Exempt Supplies (including outward supplies on which reverse charge is applicable)
  • In this case the ITC would be allowed & reversed as per the following rules: –
ITC is used for Providing Taxable Supplies Only Full ITC shall be allowed
ITC is used for Providing Exempt Supplies Only Full ITC shall be reversed
ITC is used for partly for Providing Taxable Supplies & Partly for Providing Exempt Supplies
  • The proportionate ITC for Taxable Supplies shall be allowed
  • The proportionate ITC for Exempt Supplies shall be reversed

For Example : A Ltd. is a trader, the total ITC on goods (stock) purchased is Rs. 50,000 and ITC on services purchased is Rs. 1,00,000. Turnover details are as follows: –

Taxable Supplies: 1,75,000

Exempt Supplies: 65,000

Total Turnover: 2,40,000

Now ITC would be allowed and reversed as follows: –

  • Since goods is the stock and for trader its sale is also taxable, hence full ITC of Rs. 50,000 is allowed. (Since it is directly attributable to the taxable supplies)
  • Services fully used for providing taxable supplies: ITC of Rs. 1,00,000 is allowed
  • Services fully used for providing exempt supplies: ITC of Rs. 1,00,000 is to be reversed
  • Services partly used for providing taxable supplies & partly for exempt supplies:
    • ITC of Rs. 72,917 proportionate to taxable supplies (1,00,000 × 1,75,000/2,40,000) is allowed
    • ITC of Rs. 27,083 proportionate to exempt supplies (1,00,000 × 65,000/2,40,000) is to be reversed

In the above example if A Ltd. is the manufacturer then: –

  • The ITC on material purchased, which is exclusively using in manufacturing of taxable product shall be fully allowed.
  • The ITC on material purchased, which is exclusively using in manufacturing of exempted product shall be fully reversed.
  • The ITC on material purchased, which is partly using in manufacturing of taxable product and partly in exempt product, shall be allowed & reversed by taking proportion of taxable outward supplies & exempt outward supplies.

Points to be noted

  • Since the calculation in this rule is based on the exempt & taxable turnover of registered person for the tax period.
  • Where the registered person does not have any turnover during that particular tax period or the information of turnover values (exempt or taxable) is not available, in this case the values of turnover for the last tax period in which the details of such turnover are available, shall be considered.
  • The calculations shall be done separately for ITC of CGST, SGST/UTGST & IGST.
  • For the purpose of this rule (point 4.3.1.2), the value of “exempt supply shall include” the following:
    • Outward Supplies on which the recipient is liable to pay tax on reverse charge basis
    • Transactions in securities
    • Sale of land, and
    • Sale of building where the entire consideration has been received after issuance of completion certificate, where required, by competent authority or after its first occupation, whichever is earlier. (i.e. *Point No. 5 of Schedule III of CGST) (Please see [2nd Edition] of Taxmann’s GST Mini Ready Reckoner )

Disclaimer: The content/information published on the website is only for general information of the user and shall not be construed as legal advice. While the Taxmann has exercised reasonable efforts to ensure the veracity of information/content published, Taxmann shall be under no liability in any manner whatsoever for incorrect information, if any.

3 thoughts on “GST Input Tax Credit & Blocked Credits”

    1. “Under GST law, a registered person is entitled to take ITC of tax charged on any supply of goods/services or both which are used or intended to be used in the course or furtherance of his business. Further, Section 17(5) of the CGST Act, 2017 provides list of few goods and services on which ITC is not available.

      Subject to satisfaction of other conditions relating to Input Tax Credit, the Electric cables purchased for plant and machinery would be eligible for the Input Tax Credit.”

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