Rule 40 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.
Rule 40 sets the conditions for claiming input tax credit under section 18(1): credit on stock when a person becomes liable to pay tax, takes registration, opts out of composition or sees exempt supplies become taxable. It fixes the declaration in FORM GST ITC-01, the thirty-day period, the reduction for capital goods, the certificate above two lakh rupees and the matching of supplier details. Sub-rule (2) covers the value of capital goods in the cases under section 18(6).
This article follows the Central Goods and Services Tax Rules, 2017 as amended up to 31 October 2025 in the compilation consulted; notifications issued after that date should be checked.
Credit claimed under section 18(1) on inputs held in stock, inputs contained in semi-finished or finished goods, or capital goods under clauses (c) and (d), is subject to rule 40(1). The registered person must file a declaration in FORM GST ITC-01 within thirty days of becoming eligible, or a further period the Commissioner notifies. Capital goods credit is claimed after reducing the tax paid by five percentage points per quarter of a year or part thereof. A certificate of a practising chartered accountant or cost accountant is needed if the claim exceeds two lakh rupees.
The section behind the rule
Rule 40 gives the manner for section 18(1) of the CGST Act, 2017. See section 18 of the CGST Act: input tax credit in special circumstances and, on the stock claim, section 18(1): claiming ITC on stock when you register. Sub-rule (2) serves section 18(6). If you are working out a claim of this kind and want it checked before the declaration is filed, our input tax credit reconciliation service can do so.
Sub-rule (1): the conditions
The sub-rule says the credit claimed under section 18(1) "on the inputs held in stock or inputs contained in semi-finished or finished goods held in stock, or the credit claimed on capital goods in accordance with the provisions of clauses (c) and (d) of the said sub-section, shall be subject to the following conditions".
Clause (a): capital goods reduction
"The input tax credit on capital goods, in terms of clauses (c) and (d) of sub-section (1) of section 18, shall be claimed after reducing the tax paid on such capital goods by five percentage points per quarter of a year or part thereof from the date of the invoice or such other documents on which the capital goods were received by the taxable person."
Clause (b): the declaration and the thirty days
"The registered person shall within a period of thirty days from the date of becoming eligible to avail the input tax credit under sub-section (1) of section 18, or within such further period as may be extended by the Commissioner by a notification in this behalf, shall make a declaration, electronically, on the common portal in FORM GST ITC-01 to the effect that he is eligible to avail the input tax credit as aforesaid."
Proviso. "Any extension of the time limit notified by the Commissioner of State tax or the Commissioner of Union territory tax shall be deemed to be notified by the Commissioner."
The clause was substituted by Notification No. 22/2017 - CT dated 17.08.2017, with effect from 01.07.2017, as the footnote records. No extension notification is in the sources consulted; check the notifications before relying on any period beyond thirty days.
Clause (c): the stock date for each case
The declaration "shall clearly specify the details relating to the inputs held in stock or inputs contained in semi-finished or finished goods held in stock, or as the case may be, capital goods" as on the day set out below.
| Sub-clause | Claim under section 18(1) | Day on which the stock or capital goods are specified |
|---|---|---|
| (i) | Clause (a): a person who applied for registration within thirty days from the date of becoming liable and was granted it | The day immediately preceding the date from which he becomes liable to pay tax under the provisions of the Act |
| (ii) | Clause (b): a person who takes registration under section 25(3) | The day immediately preceding the date of the grant of registration |
| (iii) | Clause (c): a registered person who ceases to pay tax under section 10 | The day immediately preceding the date from which he becomes liable to pay tax under section 9 |
| (iv) | Clause (d): an exempt supply that becomes a taxable supply | The day immediately preceding the date from which the supplies made by the registered person become taxable |
Clause (d): the certificate
"The details furnished in the declaration under clause (b) shall be duly certified by a practicing chartered accountant or a cost accountant if the aggregate value of the claim on account of central tax, State tax, Union territory tax and integrated tax exceeds two lakh rupees."
The test is the aggregate value of the claim across the four taxes. It is "exceeds", so a claim of exactly two lakh rupees does not need the certificate on the words printed.
Clause (e): matching supplier details
"The input tax credit claimed in accordance with the provisions of clauses (c) and (d) of sub-section (1) of section 18 shall be verified with the corresponding details furnished by the corresponding supplier in FORM GSTR-1 and in FORM GSTR-1A, if any, or as the case may be, in FORM GSTR-4, on the common portal." The words "and in FORM GSTR-1A, if any," were inserted by Notification No. 12/2024 - CT dated 10.07.2024. This clause is limited to capital goods claims under clauses (c) and (d).
Sub-rule (2): capital goods under section 18(6)
"The amount of credit in the case of supply of capital goods or plant and machinery, for the purposes of sub-section (6) of section 18, shall be calculated by reducing the input tax on the said goods at the rate of five percentage points for every quarter or part thereof from the date of the issue of the invoice for such goods."
For the sale of capital goods, see section 18(6): sale of capital goods and rule 44(6) and the next articles in this series on rule 44.
Who does what, by when
| Who | What | Form | Period or condition | Clause |
|---|---|---|---|---|
| Registered person | Reduces tax on capital goods by five percentage points per quarter or part thereof | Not applicable | From the date of the invoice or other document of receipt | (1)(a) |
| Registered person | Declaration of eligibility | FORM GST ITC-01 | Within thirty days of becoming eligible, or a further period notified by the Commissioner | (1)(b) |
| Registered person | Specifies stock or capital goods as on the day set out for the case | In the declaration | The day immediately preceding the date given in (i) to (iv) | (1)(c) |
| Practising chartered accountant or cost accountant | Certifies the details | In the declaration | Where aggregate claim exceeds two lakh rupees | (1)(d) |
| Common portal | Verification against supplier details for capital goods claims | FORM GSTR-1, FORM GSTR-1A if any, or FORM GSTR-4 | On the common portal | (1)(e) |
| Supplier of capital goods | Reduces input tax by five percentage points per quarter or part thereof from invoice date | Not applicable | For section 18(6) | (2) |
A worked example
Nandini Garments, an invented trader, takes voluntary registration on 15 May and becomes entitled to claim credit under section 18(1)(b) on stock. Under clause (c)(ii) the declaration must specify the inputs held in stock on 14 May, the day immediately preceding the date of grant of registration. Under clause (b) the declaration in FORM GST ITC-01 must be made within thirty days of the date of becoming eligible.
The stock is large and the aggregate central, State or Union territory and integrated tax claimed exceeds two lakh rupees, so under clause (d) the details must be certified by a practising chartered accountant or cost accountant.
If the same company's claim were on capital goods under clause (c) or (d), the tax paid on the capital goods would first be reduced by five percentage points for each quarter of a year or part thereof from the date of the invoice, under clause (a). A capital good invoiced in the previous year, for example, has run through more than one quarter, so more than one set of five percentage points is deducted. The details would also be verified against the supplier's FORM GSTR-1 under clause (e).
Points to watch
- Thirty days is a hard clock unless the Commissioner notifies an extension.
- "Or part thereof". A quarter begun counts as a full quarter for the five percentage points.
- The stock date is the day before. Each case in clause (c) uses the day immediately preceding a different date.
- Claim above two lakh rupees. Certificate needed; exactly two lakh rupees does not exceed it.
- Other reductions. For reversals on exit or on sale, see rule 44 and rule 42.
Need help with an FORM GST ITC-01 claim?
A late or under-documented declaration can cost you credit you are entitled to. We prepare the stock statement, apply the capital goods reduction, arrange the certificate where the threshold is crossed and file within the period. See our input tax credit reconciliation service.
Key takeaways
- Rule 40(1)(b): FORM GST ITC-01 within thirty days of becoming eligible, or a further period notified by the Commissioner.
- Rule 40(1)(a) and (2): capital goods credit reduced by five percentage points per quarter or part thereof.
- Rule 40(1)(c): the stock date is the day immediately preceding a date set for each section 18(1) case.
- Rule 40(1)(d): certificate of a practising chartered accountant or cost accountant where the aggregate claim exceeds two lakh rupees.
- Rule 40(1)(e): capital goods credit verified against the supplier's FORM GSTR-1, FORM GSTR-1A if any, or FORM GSTR-4.
Read next
- Rules 41 and 41A of the CGST Rules, 2017: transfer of credit
- Rules 44 and 44A of the CGST Rules, 2017: reversal of credit in special circumstances
- Section 18(1): claiming ITC on stock when you register
- Rule 38 of the CGST Rules, 2017: banking company credit
Disclaimer: Based on the Central Goods and Services Tax Rules, 2017 and the GST Acts as amended up to 31 October 2025 in the compilation consulted, read with the Finance Act, 2026 where this article says so, as consulted on 2 October 2026. Notifications, circulars and amendments issued after that date, the forms on the common portal and the way the tax authorities apply these provisions should be checked. This article is general information, not legal advice; check the official text before acting.