Section 16(4) of CGST Act: Time Limit for Availing Input Tax Credit

Section 16(4) establishes a clear timeframe for taxpayers to claim input tax credit (ITC). It promotes efficiency and reduces discrepancies in tax filings. In this article, we will provide you with the explanation of Section 16 4 of CGST Act. We will also look at the amendment to Section 16 4 of CGST Act and the challenges and impact of Section 16 4 of CGST Act 2017.

What is Section 16(4) of CGST Act

Section 16(4) of the CGST Act specifies that no registered person can take Input Tax Credit (ITC) for any invoice or debit note issued against the supply of goods or services after the due date for filing the return for November of the next financial year, or the actual date of filing the annual return for that year. The main objective of Section 16(4) of CGST Act 2017 is to ensure that the claims are made on time.

Challenges of Section 16(4) of CGST Act

Apart from the explanation of Section 16 4 of CGST Act, let’s look at its key challenges:

• Strict Deadlines: Businesses can fail to claim ITC if they do not meet the tight timeframes due to delays in administrative processes.
• Increased Compliance Load: Keeping accurate records and filing returns on time can be challenging, which is an additional task for businesses.
• Financial Strain: Not being able to claim ITC within the set period can lead to higher costs, which can negatively affect a business’s cash flow and profits.
• Reconciliation Difficulties: It can be difficult to match all invoices and ensure credits are claimed by the deadline, especially where there are many transactions.

Impact of Section 16(4) of CGST Act

Now that you know about the challenges of  Section 16(4) of CGST Act 2017, here is how it affects businesses: 

• Businesses are motivated by Section 16 4 of CGST Act to meet the return filing deadlines and minimise wrong processing of input tax credit claims.
• Section 16 4 of CGST Act makes keeping records properly and timely filing returns a must thus making managing business operations more complicated.
• A delay in ITC claims means that a business could be cash-strapped and need short-term loans.
• Where a business does not meet these time limits specified under section 16(4), it incurs penalties. This compounds its finance problems or even threaten its financial position.

Section 16(4) of CGST Act Writ Petition

Businesses have filed writ petitions against the strict deadlines of Section 16(4) of the CGST Act, arguing that they are too harsh and difficult to meet. Courts are reviewing these petitions to determine if the rule is fair and practical. Based on the court’s findings, there might be changes suggested to the CGST Act. These petitions highlight how businesses are struggling with the compliance demands and financial pressures imposed by the current provision.

Section 16(4) of CGST Act Example

Let’s say that a firm receives a bill for services offered in March 2023. The period within which the business should call for input tax credit (ITC), if there is any, is either before 30th November 2024 or by filing its annual return for Financial Year 2023-24 whichever is earlier. If this deadline passes without notice to the company, it will not be able to claim ITC and thereby affecting cash flows.

Changes Recommended by the GST council

The GST Council has recommended changes to Section 16(4) of the CGST Act, including a retrospective amendment allowing taxpayers to claim input tax credit (ITC) on invoices or debit notes for the financial years 2017-18 to 2020-21 in GSTR-3B returns filed by November 30, 2021. This extension was particularly helpful for businesses that missed earlier deadlines. Additionally, the Council suggested a relaxation for businesses whose GST registration was cancelled and later reinstated, permitting ITC claims if returns were filed within 30 days of revocation. The Budget 2024 also introduced amendments to Section 112, empowering the government to notify the date for filing appeals before the Appellate Tribunal and revising the time limit for such filings, effective from August 1, 2024.

In conclusion, Section 16(4) of the CGST Act enforces strict deadlines for claiming ITC, which can create challenges for businesses. Although past recommendations offered some relief, the core deadlines remain unchanged. Businesses should stay diligent with their record-keeping and filing to avoid missing out on ITC.