Section 18(1): Claiming ITC on Stock When You Register

Section 18 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.

A business crosses the threshold in August, registers in September, and is holding ₹40 lakh of stock bought over the previous eighteen months with GST paid on it.

How much of that credit can it take?

Section 18(1) answers it in four situations, and Rule 40 adds a limit that removes most of the answer.

18(1)(a) — a person who applies for registration within thirty days of becoming liable is entitled to credit on 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. 18(1)(b) — voluntary registration under s.25(3): same, as on the day immediately preceding the date of grant of registration. 18(1)(c) — a person ceasing to pay composition tax: same, plus capital goods, as on the day immediately preceding the date of becoming liable under s.9. 18(1)(d) — an exempt supply becoming taxable: same, plus capital goods used exclusively for the exempt supply. Rule 40(1)(b) caps all of them at invoices not older than one year.

The four situations and their dates

The thirty-day condition in 18(1)(a)

This is a condition of entitlement, not merely a procedural default.

A person liable to register from 1 August who applies on 25 August gets credit as on 31 July. A person who applies on 20 September does not get s.18(1)(a) credit at all — the sub-clause requires the application within thirty days.

The consequence is significant: a delayed registration loses not only the intervening period's compliance position but the entire opening stock credit.

Rule 40(1)(b): the one-year limit

"...the registered person shall not be entitled to take input tax credit 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."

This is where most of the credit disappears. A trader registering with two years' inventory can claim only on invoices issued in the last twelve months.

The limit runs from the invoice date, not the purchase date, receipt date or the date of registration.

Capital goods: only in (c) and (d)

Sub-clauses (a) and (b) do not permit credit on capital goods. A new registrant, whether by liability or voluntarily, gets credit on stock only.

Sub-clauses (c) and (d) do — and Rule 40(1)(a) prescribes the reduction: credit on capital goods is claimed reduced by five percentage points per quarter or part thereof from the date of the invoice.

So a machine invoiced ten quarters before the trigger date carries 50% of its original credit.

The procedure: FORM GST ITC-01

Rule 40(1)(b): the registered person shall, within thirty days from the date of becoming eligible to avail credit under s.18(1), make a declaration electronically in FORM GST ITC-01, to the effect that he is eligible to avail the credit.

Rule 40(1)(d): the details in ITC-01 must be certified by a chartered accountant or a cost accountant where the aggregate value of the claim on account of central tax, State tax, Union territory tax and integrated tax exceeds two lakh rupees.

Two practical points:

Thirty days from becoming eligible, not thirty days from registration. For 18(1)(a) the eligibility date is the day the liability arose.

The certificate threshold is on the aggregate claim, across all tax heads.

What must be documented

• a stock statement as at the relevant date, with quantity, description and value, tied to the physical count;
• for semi-finished and finished goods, a working showing the inputs contained in them — a bill of materials or standard consumption basis;
• purchase invoices for each item, with dates within the one-year window;
• for capital goods under (c) or (d), the invoice date and quarter count for the 5% reduction;
• the CA or CMA certificate where the claim exceeds ₹2 lakh.

The inputs-contained working for semi-finished and finished goods is the item most often missing. It is a real computation, not a percentage estimate, and it is where an officer will focus.

What is not available

• Input services in any of the four situations — s.18(1) covers inputs and, in (c) and (d), capital goods.
• Invoices older than one year.
• Capital goods for a new registrant under (a) or (b).
• Credit where the goods are used for exempt supplies — the ordinary s.17 apportionment applies from day one.
• Blocked credit under s.17(5). Section 18(1) opens "subject to such conditions and restrictions as may be prescribed", and s.17(5) begins with a non-obstante clause covering s.18(1).

Key takeaways

• Four situations in s.18(1), each with its own entitlement date.
• 18(1)(a) requires application within thirty days of becoming liable — a condition, not a formality.
• Capital goods only under (c) and (d), reduced by 5 percentage points per quarter.
• Rule 40(1)(b): no credit on invoices older than one year.
• Declaration in FORM GST ITC-01 within thirty days of becoming eligible.
• CA or CMA certificate where the aggregate claim exceeds ₹2 lakh.

Read next

• ITC-01: Declaration for Claiming ITC on Existing Stock
• Section 18 CGST: ITC in Special Circumstances
• Section 18(4): Reversal on Opting for Composition or Exemption
• Voluntary GST Registration: Benefits Below the Threshold

Disclaimer: Positions stated as on 5 September 2026, based on the CGST Act and Rules as amended to 31 March 2026 (ICAI Bare Law, 12th edition).