Latest Amendments to Section 16(4) of the CGST Act: A Comprehensive Analysis

Introduction 

The Goods and Services Tax (GST) regime in India has been a transformative step towards unifying the country's indirect tax structure. Among its various provisions, Section 16 of the Central Goods and Services Tax (CGST) Act, 2017, holds significant importance as it governs the eligibility and conditions for availing Input Tax Credit (ITC). Specifically, Section 16(4) sets the time limit for claiming ITC, ensuring timely compliance and reducing disputes. 

Over the years, the government has introduced several amendments to Section 16(4) to address practical challenges faced by taxpayers. The Finance Act, 2024, brought notable changes, including the insertion of subsections (5) and (6), providing relief in specific scenarios. This article delves deep into these amendments, offering a detailed understanding for stakeholders. 

Understanding Section 16(4) of the CGST Act 

Before exploring the amendments, it's essential to comprehend the original provisions of Section 16(4): 

"A registered person shall not be entitled to take input tax credit in respect of any invoice or debit note for the supply of goods or services or both after the thirtieth day of November following the end of the financial year to which such invoice or debit note pertains or furnishing of the relevant annual return, whichever is earlier." 

This provision aimed to set a definitive timeline for taxpayers to claim ITC, thereby ensuring timely compliance and reducing disputes. 

Key Amendments to Section 16(4) 

1. Extension of Time Limit for Availing ITC for FY 2017-18 to 2020-21 

In a significant move, the Finance Act, 2024, introduced Section 16(5), providing relief to taxpayers who missed claiming ITC within the stipulated time for the initial years of GST implementation. As per the amendment: 

• Extended Deadline: Taxpayers can now claim ITC for invoices or debit notes pertaining to the financial years 2017-18, 2018-19, 2019-20, and 2020-21 in any return filed up to November 30, 2021. 

• Retrospective Effect: This amendment is effective retrospectively from July 1, 2017. 

This extension provides relief to taxpayers who faced challenges during the initial years of GST implementation, allowing them to claim ITC that was previously time-barred. 

2. Relaxation for Revoked Registrations 

Another critical amendment pertains to cases where GST registrations were cancelled and subsequently revoked. The Finance Act, 2024, introduced Section 16(6), which states: 

• Conditional Relaxation: In cases where returns for the period from the date of cancellation of registration till the date of revocation are filed within 30 days of the order of revocation, the provisions of Section 16(4) shall be conditionally relaxed. 

• Retrospective Application: This amendment is also effective retrospectively from July 1, 2017. 

This change ensures that taxpayers who had their registrations canceled but later reinstated can claim ITC for the intervening period, provided they comply with the stipulated conditions. 

3. Clarification on RCM Supplies from Unregistered Persons 

The Central Board of Indirect Taxes and Customs (CBIC) issued Circular No. 211/5/2024-GST on June 26, 2024, providing clarity on the applicability of Section 16(4) for Reverse Charge Mechanism (RCM) supplies received from unregistered persons: 

• Invoice Issuance by Recipient: In cases where the recipient is liable to pay tax under RCM for supplies received from unregistered suppliers, the recipient must issue an invoice under Section 31(3)(f) of the CGST Act. 

• Determination of Financial Year: The relevant financial year for calculating the time limit under Section 16(4) shall be the year in which the recipient issues the invoice, not the year of supply. 

• Interest and Penalty: If the invoice is issued after the time of supply, the recipient is required to pay interest on the delayed payment of tax. Additionally, delayed issuance of the invoice may attract penal action under Section 122 of the CGST Act. 

This clarification ensures uniformity in the treatment of RCM transactions and provides guidance on compliance timelines. 

4. Mechanism for Rectification of Past ITC Claims 

To operationalize the benefits of the newly inserted subsections (5) and (6) in Section 16, the CBIC issued Notification No. 22/2024-Central Tax on October 8, 2024. This notification outlines the procedure for taxpayers to rectify past ITC claims that were previously disallowed due to the time limits specified in Section 16(4). 

Key Provisions: 

• Eligibility: Taxpayers against whom orders under Sections 73, 74, 107, or 108 were issued, confirming the demand for wrong availment of ITC due to contravention of Section 16(4), but where such ITC is now available under the new provisions. 

• Application Process: Eligible taxpayers must file an application for rectification electronically on the GST portal within six months from the date of the notification. The application should include detailed information as per Annexure A of the notification. 

• Role of Proper Officer: The officer responsible for rectifying the order will be the same officer who issued the original order. Upon receiving the application, the officer will review and issue the rectified order within three months, to the extent possible. 

• Natural Justice: If the rectification is likely to have adverse consequences for the taxpayer, the principles of natural justice will be followed, ensuring that the taxpayer is given an opportunity to present their case before any rectified order is passed. 

This mechanism provides a structured approach for taxpayers to rectify past ITC claims, ensuring compliance with the updated provisions. 

Old vs. New Provisions of Section 16(4) 

Criteria	Before Amendment (Pre-2024)	After Amendment (Finance Act, 2024)
ITC Claim Deadline	30th Nov of the following FY or date of annual return, whichever is earlier	Extended for FY 2017-18 to 2020-21 via Section 16(5)
Revoked Registration Cases	ITC disallowed if return not filed during cancellation	ITC allowed if returns filed within 30 days post-revocation under Section 16(6)
RCM Supplies from Unregistered Persons	Ambiguity in invoice date vs. supply date	Clarified: Financial year tied to invoice issued by recipient
Rectification of Past Orders	No formal process for relief	New application process under Notification 22/2024

Practical Implications 

The amendments to Section 16(4) and the introduction of subsections 16(5) and 16(6) have several practical implications: 

• Reassessment of ITC Claims: Taxpayers should reassess ITC claims for the financial years 2017-18 to 2020-21 to identify any missed credits that can now be claimed due to the extended timelines. 

• Advisory on Revoked Registrations: For cases where GST registrations were cancelled and later revoked, it's crucial to ensure that the conditions for claiming ITC during the cancellation period are met, and appropriate returns are filed within the stipulated timeframe. 

• Compliance with RCM Provisions: Proper issuance of invoices under RCM, especially when dealing with unregistered suppliers, is essential to ensure compliance with the clarified timelines and avoid interest or penalties. 

• Monitoring Zero-Rated Supplies: With the introduction of Sections 16(5) and 16(6), it's important to monitor zero-rated supplies to ensure they fall within the notified classes and that no refund is claimed for goods subjected to export duty. 

Strategic Recommendations 

To navigate these updates effectively, taxpayers and consultants should consider the following strategies: 

• Review Historical Data: Conduct a comprehensive review of GST returns and ITC ledgers from FY 2017-18 to 2020-21. Identify invoices that were excluded due to the earlier time limitations and evaluate their eligibility under the new provisions. 

• Amend and Rectify: Where possible, file rectification applications under the specified process in Notification No. 22/2024. Ensure that documentation is complete and responses to any potential queries from GST officers are ready. 

• Training and Systems Update: Educate internal teams and update accounting systems to ensure accurate invoice capturing and timely claim of ITC, especially under RCM. 

• Audit Preparedness: Maintain detailed audit trails and backup documentation for all ITC claims, especially those taken under the amended timelines, to be prepared for scrutiny. 

• Adopt a Proactive Approach: Stay updated with CBIC notifications and circulars. Join professional forums and attend training sessions to ensure proactive compliance. 

Anticipated Challenges 

While the amendments bring relief, they also pose certain challenges: 

• Administrative Burden: The rectification process requires detailed documentation and coordination, which may burden taxpayers, especially SMEs. 

• Technology Gaps: Legacy ERP systems may not have captured old invoice data efficiently, making reconciliation difficult. 

• Ambiguities: Despite clarifications, certain nuances—such as dealing with mismatched invoices in GSTR-2A or GSTR-2B—may remain contentious. 

• Differential Officer Interpretations: Officers across jurisdictions may interpret the amendments differently, potentially leading to inconsistent outcomes. 

Conclusion 

The recent amendments to Section 16(4) of the CGST Act, along with the introduction of subsections 16(5) and 16(6), represent significant developments in the GST framework. These changes aim to provide relief to taxpayers, clarify compliance requirements, and prevent misuse of provisions. 

Staying abreast of these changes is essential for accurate compliance and optimizing tax positions. Taxpayers are advised to consult with professionals and refer to the latest notifications and circulars issued by the CBIC to ensure adherence to the updated regulations. 

Frequently Asked Questions (FAQs) 

Q1: Can I still claim ITC on invoices from FY 2017–18 to FY 2020–21 under the extended window? 

A: Yes, but only if your claim was earlier disallowed under Section 16(4) and now qualifies under the relaxation provided via Section 16(5). You must have filed a rectification application by the deadline prescribed in CBIC Notification No. 22/2024, i.e., 31st May 2025. 

Q2: My GST registration was revoked and then restored in April 2025. Can I claim ITC on purchases made during the cancellation period? 

A: Yes. As per the newly inserted Section 16(6), ITC can be claimed if all pending returns for the cancelled period were filed within 30 days from the date of revocation. Ensure proper documentation is maintained for audit purposes. 

Q3: Does the amendment affect ITC eligibility under Reverse Charge Mechanism (RCM) from FY 2024–25 onwards? 

A: Yes. The explanation under Section 16(4) now clarifies that for RCM supplies where the recipient issues the invoice (e.g., services from unregistered suppliers), the date of invoice issued by the recipient determines the relevant financial year for ITC eligibility.