GST ITC Rule – Reversal and Reclaim of Input Tax Credit If
Payment Not Made Within 180 Days
Introduction
Under the GST law, the
Input Tax Credit (ITC) system is one of the biggest benefits to businesses. It
allows taxpayers to offset the tax paid on purchases (inward supplies) against
their outward tax liability. But this benefit comes with certain conditions to
maintain transparency and accountability in the tax chain.
One such critical
condition is:
The buyer must pay the
supplier the invoice amount along with GST within 180 days.
If this is not done, the
claimed ITC must be reversed, and interest becomes payable. These
provisions are embedded in Section 16(2) of the CGST Act and further
detailed in Rule 37 of the CGST Rules.
What Do the
Law and Rules Say?
Section
16(2) – CGST Act
As per Section 16(2),
a registered person is entitled to claim ITC only when:
1. They
possess a valid tax invoice.
2. They
have received the goods or services.
3. The
tax has been paid to the government by the supplier.
4. The
recipient files the return (GSTR-3B).
But the second proviso
adds a vital condition:
“If the recipient fails
to pay the supplier the value of the supply along with tax within 180 days,
he must reverse the ITC along with interest under Section 50.”
However, if payment is
made later, the third proviso assures that:
“The recipient shall be
entitled to re-avail the ITC once payment is made.”
Rule 37 –
CGST Rules
Rule 37
prescribes the mechanism for this reversal and re-availment:
- If full or partial payment is not
made within 180 days, the recipient shall reverse proportionate ITC
in GSTR-3B of the period immediately following the 180-day
deadline.
- Interest
must also be paid on such reversed amount.
- Once payment is made, the ITC can be reclaimed
in any future tax period, and there is no time limit for this
re-availment.
- Supplies without consideration
under Schedule I, or additional charges under Section
15(2)(b) (e.g., freight paid by the buyer) are deemed to be paid
and thus exempt from this rule.
Example to
Understand in Practical Terms
Let’s say:
- Invoice Date: 1st January 2025
- Value: ₹1,00,000 + GST ₹18,000
- ITC Claimed in January 2025 GSTR-3B:
₹18,000
- Payment Not Made Until: 1st August
2025
What should be done?
- 180 Days end on:
30th June 2025
- In July 2025,
you must:
- Reverse ₹18,000 ITC
- Pay interest
from 1st Jan to 30th June under Section 50
- In August 2025,
if you make payment:
- Re-avail ₹18,000 ITC
in GSTR-3B
- No need to file a separate form
Key Legal
Points at a Glance
|
Provision
|
Effect
|
|
Section
16(2) – 2nd Proviso
|
ITC
must be reversed with interest if payment not made within 180 days
|
|
Section
16(2) – 3rd Proviso
|
Re-avail
ITC once payment is made
|
|
Rule
37(1)
|
Reverse
ITC proportionately with interest in GSTR-3B
|
|
Rule
37(2)
|
Reclaim
ITC after making payment
|
|
Rule
37(4)
|
No
time limit for re-availing ITC that was reversed
|
Conclusion
Section 16(2) and Rule 37
together promote financial discipline and transparency in claiming ITC. While
GST allows businesses to take credit for taxes paid, it also expects the
recipient to fulfill their end of the transaction — by making timely
payments to suppliers.
So, remember:
- Claim ITC only when all conditions
are met
- Reverse it if payment is delayed
- Reclaim it once you make the payment
Disclaimer: All the Information is based on the notification, circular advisory and order issued by the Govt. authority and judgement delivered by the court or the authority information is strictly for educational purposes and on the basis of our best understanding of laws & not binding on anyone.
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