ITC reversal under the 180-day rule

Where the rule comes from

The second proviso to Section 16(2) of the CGST Act and Rule 37 of the CGST Rules say that a buyer who fails to pay the supplier the value of supply plus tax within 180 days from the invoice date must add back the ITC claimed on it. The idea is simple: credit is for tax you have actually paid to your supplier, not for bills you leave unpaid.

Under Rule 37 as amended, the reversal is shown in GSTR-3B for the tax period immediately following the period in which the 180 days end, with interest. When you pay later, the credit is re-availed.

When it does not apply

• Tax paid under reverse charge (you paid it yourself).
• Supplies between related or distinct persons made without consideration, which are deemed supplies under Schedule I.
• Amounts added to the value under Section 15(2)(b), that is, costs the supplier was liable for but you paid directly to someone else on its behalf.

The rule is also separate from the 45-day payment rule for MSME suppliers under the MSMED Act and the related income-tax provision; see the MSME 45-day payment rule.

Worked example with part payment

A distributor buys goods on 1 April: ₹2,00,000 + 18% GST (₹36,000), invoice total ₹2,36,000. ITC of ₹36,000 is claimed in April.

• By 28 September, when 180 days end, only ₹1,18,000 has been paid, half the invoice.
• Unpaid proportion: 50%. ITC to reverse: ₹36,000 × 50% = ₹18,000.
• Reverse ₹18,000 in the GSTR-3B for October, the period immediately following the one in which the 180 days end.
• Interest under Section 50 is payable on the reversed credit if it had been used, from the date of availing to the date of reversal.
• In December the balance ₹1,18,000 is paid. Reclaim ₹18,000 in December's GSTR-3B.

Payment is treated as made towards value and tax in proportion, so a part payment brings back a matching share of the credit.

Counting the 180 days

Count from the date of the supplier's invoice, not from the date you received the goods or booked the bill. Payment includes adjustments by book entry, such as a set-off against an amount the supplier owes you, if properly recorded.

Check day counts with a date calculator; month lengths vary. Monthly filers are assumed here; QRMP filers report in the quarter that follows.

Where to report it

• Reversal: GSTR-3B, ITC reversed section, under 'others' (not the Rule 42/43 line).
• Reclaim: GSTR-3B, ITC available section, all other ITC, and also shown in the reclaimed line of the ineligible/reversed section as the portal's format requires.
• The portal's ITC reversal and re-claimed statement tracks these amounts; the reclaim cannot exceed the reversal recorded. See GST electronic ledgers.

Table labels change as the form is revised. Check the current GSTR-3B instructions on gst.gov.in.

Building a monthly check

1. Run a bill-wise payables ageing as on the last day of the month.
2. Filter bills older than 150 days, so you have a month's warning.
3. Pay those suppliers, or plan the reversal.
4. List bills crossing 180 days in the month, with unpaid amount and GST share.
5. Pass a journal for the reversal in the books, and note it for the return.
6. When paid later, reverse the journal and reclaim.

This is general information, not tax advice.

Common mistakes

• Counting from the goods receipt date.
• Reversing the whole credit when half the bill is paid.
• Forgetting to reclaim after paying, which loses credit you are entitled to.
• Bills left 'unpaid' in the books only because receipts were never matched against them. Clean bill-wise allocation first; see Tally bill-wise details.

Spotting old bills with Cashflow OS

Cashflow OS reads bill-wise payables from TallyPrime and shows them with ageing, so the owner can open the phone and see which supplier bills are close to 180 days. That works only if payments in Tally are allocated against the right bills. The reversal and reclaim themselves are entered in your books and in GSTR-3B on the portal.