INPUT TAX CREDITCentral
Section 18 of The Central Goods and Services Tax Act, 2017
- (1)Subject to such conditions and restrictions as may be prescribed---
- (a)a person who has applied for registration under this Act within thirty days from the date on which he becomes liable to registration and has been granted such registration shall be entitled to take credit of input tax in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the day immediately preceding the date from which he becomes liable to pay tax under the provisions of this Act;
- (b)a person who takes registration under sub-section (3) of section 25 shall be entitled to take credit of input tax in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the day immediately preceding the date of grant of registration;
- (c)where any registered person ceases to pay tax under section 10, he shall be entitled to take credit of input tax in respect of inputs held in stock, inputs contained in semi-finished or finished goods held in stock and on capital goods on the day immediately preceding the date from which he becomes liable to pay tax under section 9: Provided that the credit on capital goods shall be reduced by such percentage points as may be prescribed;
- (d)where an exempt supply of goods or services or both by a registered person becomes a taxable supply, such person shall be entitled to take credit of input tax in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock relatable to such exempt supply and on capital goods exclusively used for such exempt supply on the day immediately preceding the date from which such supply becomes taxable: Provided that the credit on capital goods shall be reduced by such percentage points as may be prescribed.
- (2)A registered person shall not be entitled to take input tax credit under sub-section (1) in respect of any supply of goods or services or both to him after the expiry of one year from the date of issue of tax invoice relating to such supply.
- (3)Where there is a change in the constitution of a registered person on account of sale, merger, demerger, amalgamation, lease or transfer of the business with the specific provisions for transfer of liabilities, the said registered person shall be allowed to transfer the input tax credit which remains unutilised in his electronic credit ledger to such sold, merged, demerged, amalgamated, leased or transferred business in such manner as may be prescribed.
- (4)Where any registered person who has availed of input tax credit opts to pay tax under section 10 or, where the goods or services or both supplied by him become wholly exempt, he shall pay an amount, by way of debit in the electronic credit ledger or electronic cash ledger, equivalent to the credit of input tax in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock and on capital goods, reduced by such percentage points as may be prescribed, on the day immediately preceding the date of exercising of such option or, as the case may be, the date of such exemption: Provided that after payment of such amount, the balance of input tax credit, if any, lying in his electronic credit ledger shall lapse.
- (5)The amount of credit under sub-section (1) and the amount payable under sub-section (4) shall be calculated in such manner as may be prescribed.
- (6)In case of supply of capital goods or plant and machinery, on which input tax credit has been taken, the registered person shall pay an amount equal to the input tax credit taken on the said capital goods or plant and machinery reduced by such percentage points as may be prescribed or the tax on the transaction value of such capital goods or plant and machinery determined under section 15, whichever is higher: Provided that where refractory bricks, moulds and dies, jigs and fixtures are supplied as scrap, the taxable person may pay tax on the transaction value of such goods determined under section 15.
Summary
- Section 18 of the CGST Act dictates how input tax credits are handled when a business undergoes major transitions, like getting newly registered or changing its legal structure.
- A person applying for registration within thirty days of becoming liable can claim tax credits on inputs held in stock the day before they became liable.
- A business that leaves the composition scheme to pay regular taxes can claim credit on stock and capital goods held on the preceding day.
- You cannot claim a tax credit on any goods or services if the invoice was issued more than one year ago.
- When a business is sold, merged, or transferred, the remaining unutilised tax credit can be legally transferred to the new business owner.
- If a business opts into the composition scheme or its goods become entirely tax-exempt, the owner must calculate and pay back the tax credit resting in their current stock and capital goods.
Practical examples
1On 10 January 2026, Tara's boutique crosses the threshold requiring tax registration. She applies on 20 January. Under the law, she can calculate the tax she paid on unsold dresses sitting in her shop on 9 January and claim that amount as a credit.
2Omar decides to merge his small tech firm with a larger company on 15 May 2026. He has unutilised tax credits sitting in his electronic ledger. The law allows him to transfer this leftover credit balance directly to the newly merged company.
FAQ
1. What is the time limit for claiming credit on old stock under Section 18 of The Central Goods and Services Tax Act, 2017?
According to Section 18 of The Central Goods and Services Tax Act, 2017, a registered person cannot take input tax credit on any supply after one year has passed from the date the tax invoice was issued.
2. Can I transfer my tax credits if I sell my business under Section 18 of the CGST Act?
Yes. Section 18 of the CGST Act allows you to transfer your unutilised input tax credit to the new owner if your business is sold or transferred with its liabilities.
3. What happens under Section 18 of the tax law if I switch to the composition scheme?
Section 18 of the tax law requires that if you opt to pay tax under the composition scheme, you must pay back an amount equal to the tax credit on your current stock and capital goods.
Test yourself
Q1.Under Section 18 of The Central Goods and Services Tax Act, 2017, if a person applies for registration within thirty days of becoming liable, on which day's stock can they claim input tax credit?
Q2.According to Section 18 of The Central Goods and Services Tax Act, 2017, what happens to the electronic credit ledger balance if a business opts to pay tax under the composition scheme and pays back the required credit on stock?
Q3.How do Section 18 and Section 10 of The Central Goods and Services Tax Act, 2017 interact if a taxpayer leaves the Section 10 composition scheme?
Q4.Under Section 18 of The Central Goods and Services Tax Act, 2017, what is the strict time limit for claiming input tax credit on a specific supply in special circumstances?