Availability of credit in special circumstances
Section 18, CGST Act
Straight from CBIC
Official source, not a summary of a summary
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Special-circumstance credit: you can claim ITC on stock (and capital goods, reduced) when you newly register, register voluntarily, exit composition, or when an exempt supply becomes taxable – claimed within one year of the invoice. On sale/merger/demerger, unutilised ITC transfers to the new entity. On opting into composition or becoming wholly exempt, you must reverse ITC on stock and capital goods.
What this means in practice
The parts that actually decide cases — the things a practitioner checks first.
The claim is made in FORM ITC-01 within thirty days of becoming eligible, and a chartered or cost accountant’s certificate is required where the claim exceeds two lakh rupees (Rule 40).
Credit on capital goods under 18(1) is reduced by five per cent per quarter (or part) of use before the eligibility date.
18(2) bars any 18(1) claim on an invoice older than one year from the date of the invoice – a hard limit separate from 16(4).
On transfer of business under 18(3) the credit moves through FORM ITC-02, which needs a specific provision for transfer of liabilities and a practising accountant’s certificate; on a demerger the credit is split in the ratio of the value of assets.
18(6) on sale of capital goods: pay the HIGHER of the credit taken reduced by five per cent per quarter of use, or the tax on the transaction value.
Questions people actually ask
Real questions we get on this provision, answered straight.
I have just crossed the threshold and registered. Can I claim credit on my existing stock?+
Yes – on inputs held in stock and in semi-finished and finished goods on the day before you became liable, declared in ITC-01 within thirty days, with an accountant’s certificate if the claim exceeds two lakh rupees. Invoices older than one year are not eligible.
We are selling a machine on which we took full credit three years ago.+
Under section 18(6) pay the higher of (a) the credit taken less five per cent for every quarter of use, or (b) the tax on the transaction value. For a machine used twelve quarters that is 40 per cent of the original credit compared against the tax on the sale price.
How this provision is built
The skeleton, clause by clause — useful when a notice cites a specific sub-clause.
The exact words of the law
4,101 characters, uneditedReproduced from the CBIC text. We explain it above — but you should always be able to read it yourself.
Read the full provision+
(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 .
High Court cases on this section
Judgments in our index that cite this provision. Being listed does not make a case good law — it may have been appealed or distinguished since. Read it before relying on it.
M/S KIMBERLY CLARK INDIA PVT LTD., v. THE ADDITIONAL COMMISSIONER OF GST (APPEALS-II)
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RAJU JOSEPH, v. STATE TAX OFFICER,
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MS KAMALADITYA CONSTRUCTION P LTD REPRESENTED THROUGH ITS DIRECTOR SRI ADITYA KUMAR v. THE PRINCIPAL COMMISSIONER OF CENTRAL GOODS
Read the judgment PDF →
What changed, and when
The amendment trail, newest first — because the version that applies to your case depends on the period.
2017-07-01 · Commenced
Provision as originally enacted in the CGST Act, 2017 (Act 12 of 2017) and brought into force w.e.f. 01-07-2017.
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Where this comes from
Text reproduced from the Central Board of Indirect Taxes and Customs, as available on 2026-09-05. The explanation and practice notes above are GSTZone’s own, written for this hub. If you spot anything out of date, tell us and we’ll fix it — this hub is checked daily against CBIC.
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