April 29, 2025 / GST Compliance

Compulsory ITC Reversal for Non-Payment within 180 Days

Table of Contents

Conditions to Avail Input tax credit – Section 16(2) :

Input tax credit conditions under GST must comply with before claiming Input tax credit, based on Section 16 of the CGST Act, 2017, Eligibility to Claim Input tax credit – Who can claim Input tax credit : Only a registered person (not under Composition Scheme) using goods/services for business purposes. Input tax credit is credited to the Electronic Credit Ledger after all conditions are fulfilled. (Section 16(1)).

(a) Possession of Valid Documents – Rule 36

Tax invoice by supplier.
Self-invoice under RCM.
Debit note.
Bill of Entry (for imports).
ISD invoice (Input Service Distributor).

Note : Rule 36(4): Input tax credit is available only if the invoice appears in GSTR-2B (linked to supplier’s GSTR-1/IFF). And Invoice must contain GSTINs of both parties, Description, value, tax amount , Place of supply (for inter-state).

(b) Receipt of Goods or Services

Physical or deemed receipt is essential.
Delivery to a third party on recipient’s instruction qualifies.
For services, even indirect receipt (on behalf) is acceptable.

Supplier must have paid tax to the government.
If tax unpaid by supplier: Input tax credit must be reversed with interest.
Can reclaim Input tax credit later when tax is paid.

(d) GSTR-3B Filing : Recipient must file GSTR-3B for the period of Input tax credit claim.

Additional Conditions to Know about ITC

Goods in Lots/Installments: Input tax credit only after last lot received.
180-Day Rule (Rule 37): If supplier unpaid beyond 180 days (incl. tax), Input tax credit must be reversed with interest. Can be reclaimed post-payment.
No Double Benefit – Section 16(3): Input tax credit not allowed on capital goods if GST is included in depreciation under Income Tax.
Time Limit to Claim Input tax credit —Section 16(4) Earliest of 30th November of the subsequent FY, or Date of filing Annual Return (GSTR-9)
Blocked ITC – Section 17(5) & Rule 36(3) : Input tax credit disallowed on Personal use, Motor vehicles (unless for transport business), Free samples, Works contract for immovable property, and membership clubs, fitness centers. Rule 36(3): No Input tax credit on tax paid due to fraud, willful misstatement, or suppression.

Input tax credit Reversal Scenarios

Input tax credit is required to be reversed in various situations, including:

Non-payment to suppliers within 180 days from the date of invoice [Section 16(2), second proviso].
Inputs or input services used for exempted or non-business purposes [Section 17(1) & (2)].
Change in business structure (e.g., demerger, sale, or transfer of business).
Loss, theft, or destruction of goods.

These reversals are to be disclosed as follows in GSTR-3B Table 4(B)(1): For permanent reversals (non-reclaimable). and Table 4(B)(2): For temporary reversals (reclaimable once conditions are satisfied).

Compulsory Input tax credit Reversal for Non-Payment within 180 Days

If a registered person avails Input tax credit on inward supplies (excluding those under the reverse charge mechanism) but fails to pay the supplier the value of the supply, either wholly or partly, along with the applicable tax within 180 days from the invoice date, they must reverse the proportionate Input tax credit amount corresponding to the unpaid portion. This reversal under Goods and Services Tax should be made while furnishing the Goods and Services Tax return in FORM GSTR-3B for the tax period immediately following the 180-day period.

Re-availing of Reversed – which Input tax credit previously reversed

Once the Goods and Services Tax payment is made to the supplier, the registered person is entitled to re-avail the Input tax credit that was previously reversed. Notably, the time limit specified in section 16(4) of Central Goods and Services Tax Act, 2017 does not apply to such re-availment.

Interest Liability payable u/s 50 of the CGST Act

Interest is payable u/s 50 of the Central Goods and Services Tax Act, 2017 on the amount of Input tax credit under Goods and Services Tax reversed due to non-payment. The interest is calculated from the date of availing the credit until the date of reversal.

Interest on Delayed Payment of Tax (Section 50(1)) : If a registered person fails to pay the tax due within the prescribed period, they shall be liable to pay interest at 18% per annum on the amount of unpaid tax. Interest starts from: The due date of payment till the actual date of payment. And interest is applicable even if: Return is filed late, but tax is paid voluntarily.
Interest on Wrongful Availment and Utilization of Input tax credit (Section 50(2)): If a person wrongfully avails and utilizes input tax credit, interest is payable at 24% per annum on the wrongly availed and utilized amount. Interest applies only when both availed and utilized, not just on availment. As per the Finance Act, 2022, this section was amended retrospectively from 1 July 2017, confirming that interest is only applicable when ITC is utilized (not merely availed).
Interest on Late Reversal of Input tax credit (Rule 37 scenarios) (Section 50(3)) : In cases like non-payment to the supplier within 180 days, where ITC is reversed as per Rule 37: Interest is payable from the date of availing the ITC to the date of reversal. And Rate of interest: 18% per annum.

Common Scenarios & Applicable Interest u/s 50 of the CGST Act

Situation	Applicable Interest Rate	Interest Period
Late payment of output GST	18%	From due date to actual payment date
Wrongful availment and utilization of ITC	24%	From date of utilization to date of reversal/payment
Reversal of ITC (e.g., under Rule 37)	18%	From date of availment to date of reversal
Late filing of GSTR-3B (even if tax paid later)	18%	From due date to actual filing/payment

GST Clarifications : CBIC Circular No. 186/18/2022-GST clarified that interest under Section 50(3) is payable only when wrongly availed ITC is utilized. And Self-assessment liability must include computation of interest under Section 50 in Form GSTR-3B. In cases of partial payment, Input tax credit reversal is required proportionately to the unpaid amount. and The provisions of Rule 37 do not apply to supplies where tax is payable under the reverse charge mechanism.

Additional Clarifications: Deemed Payments: Supplies made without consideration, as specified in Schedule I of the Central Goods and Services Tax Act, 2017, and any amount added in the section 15(2)(b) of Central Goods and Services Tax Act, 2017 are deemed to have been paid for the purposes of provisions of Rule 37.

Reporting in GST Returns

GSTR-3B: The reversal of Input tax credit should be reported in Table 4B(2) of GSTR-3B.
GSTR-9 (Annual Return): Such reversals are to be disclosed in Table 7A of GSTR-9.

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