Section 16(4) of CGST Act, 2017 - Time Limit to Avail ITC

Section 16(4) of CGST Act, 2017 is a crucial provision that lays down the time limit for claiming Input Tax Credit (ITC) by registered taxpayers under the Goods and Services Tax (GST) regime. Understanding this provision is essential for every business owner, as non-compliance can lead to significant financial losses.

What is Input Tax Credit (ITC)?

ITC is the credit that a business owner can avail under GST for the tax paid on inputs used for the furtherance of their business. Businesses can claim ITC on the tax paid on goods or services that are used for making taxable supplies. ITC can be used to offset the GST liability on the output supply of goods or services.

Time Limit for Availing ITC

As per Section 16(4) of CGST Act, 2017, a registered taxpayer can claim ITC only for invoices or debit notes issued during the financial year and up to the due date of furnishing the GST return for the month of September following the end of the financial year or the actual date of filing of annual return, whichever is earlier. This means that any ITC that remains unclaimed after the due date for furnishing the September month's GST return is forfeited.

For example, if the financial year ends on March 31, 2022, the due date for filing the GST return for the month of September 2022 is October 20, 2022 (as per the due date extension announced by the government due to COVID-19). Therefore, a registered taxpayer can avail ITC for invoices or debit notes issued during the financial year up to October 20, 2022, or the actual date of filing of annual return, whichever is earlier. Any unclaimed ITC after this date will be forfeited.

Exceptions to the Time Limit

There are certain exceptions to the time limit for availing ITC as per Section 16(4) of CGST Act, 2017:

ITC relating to invoices or debit notes that are not reflected in the GSTR-2A auto-populated statement can be claimed at any time before the due date for furnishing the GST return for the month of September following the end of the financial year or the actual date of filing of annual return, whichever is earlier.
ITC relating to invoices or debit notes that are issued by the supplier in the financial year subsequent to the financial year in which the goods or services are received can be claimed up to the due date of furnishing the GST return for the month of September following the end of the financial year to which such invoices or debit notes pertain or the actual date of filing of annual return, whichever is earlier.
ITC relating to invoices or debit notes that are issued by a supplier who has defaulted in payment of tax to the government can be claimed by the recipient only after the payment of tax by the supplier to the government.

Impact of Non-Compliance

Non-compliance with the time limit for availing ITC can lead to significant financial losses for the business owner. Any unclaimed ITC after the due date for furnishing the September month's GST return is forfeited and cannot be claimed in the future. This can lead to an increase in the GST liability of the business owner, as they will not be able to offset the tax liability with the forfeited ITC.

Further, non-compliance can also lead to penalties and interest payments, which can further increase the financial burden on the business owner. Therefore, it is essential for every business owner to understand the time limit for availing ITC and ensure compliance with the same.

Conclusion

Section 16(4) of CGST Act, 2017 lays down the time limit for claiming ITC by registered taxpayers under the GST regime. The time limit is essential for every business owner to understand, as non-compliance can lead to significant financial losses. It is crucial for business owners to ensure compliance with the time limit and claim ITC before the due date for furnishing the September month's GST return.