The five conditions for claiming input tax credit under Section 16

Input tax credit is the mechanism that stops GST from cascading — it lets a registered buyer offset the tax paid on purchases against the tax collected on sales. But the credit is not automatic. Section 16 of the CGST Act sets five conditions, and the credit is available only when *all* of them hold. The checklist above lays them out in order, because failing any one disallows the claim.

The first condition (Section 16(2)(a)) is that the buyer must **hold a valid tax invoice or debit note** — a Rule 46-compliant document from a registered supplier. This is where a kaccha bill fails at the door: no valid invoice, no credit, ever. The second (Section 16(2)(b)) is that the buyer must have **actually received the goods or services** — an invoice without delivery does not support a claim. The third (Section 16(2)(c)) is that the **tax must have been actually paid to the government** by the supplier; the buyer's credit is contingent on the supplier discharging the liability.

The fourth condition (Section 16(2)(aa)) is the one that has tightened the most: the **supplier must have furnished their return** so that the invoice appears in the buyer's auto-drafted statement, GSTR-2B. If the supplier has not filed and the credit is not reflected, the buyer cannot claim it — which makes the buyer dependent on the supplier's compliance discipline. The fifth is the **180-day payment rule** (second proviso to Section 16(2)): if the buyer does not pay the supplier the invoice value plus tax within 180 days of the invoice date, the credit already taken is reversed and added back with interest. It can be reclaimed once the payment is eventually made.

For a business the operational reading is that ITC hygiene is partly about your own paperwork — hold the right invoice, confirm receipt, pay within 180 days — and partly about vendor selection: a supplier who does not file returns silently destroys your credit even when your own records are perfect. Reconciling purchases against GSTR-2B every period is how the fourth condition gets caught early. The first condition is why insisting on a pakka bill rather than a kaccha bill is, for a registered buyer, a direct cash decision.