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ITC Reversal for payment after 180 days

When the taxable person is not able to pay his supplier within 180 days, he has to reverse the ITC taken on that invoice. In this article, we will discuss whether he has to reverse full ITC or some part and also since when we will calculate the interest in case of reversal.

Relevant Section: Section 16(2) of CGST Act 2017
Relevant Rules: Rule 37 of the CGST Rules 2017

Second proviso to section 16(2) says that:

“Provided further that where a recipient fails to pay to the supplier of goods or services or both, other than the supplies on which tax is payable on reverse charge basis, the amount towards the value of supply along with tax payable thereon within a period of one hundred and eighty days from the date of issue of invoice by the supplier, an amount equal to the input tax credit availed by the recipient shall be added to his output tax liability, along with interest thereon, in such manner as may be prescribed :

Provided also that the recipient shall be entitled to avail of the credit of input tax on payment made by him of the amount towards the value of supply of goods or services or both along with tax payable thereon.”

Further Rule 37 of CGST Rule 2017 says that:

  • ITC may be reversed (or amount added to output liability) in the return for the month immediately following 180 days
  • Interest must be paid at the rate of 18% from the date of taking credit to the date on which reversal (or added to output liability)
  • Once the payment is made to the supplier, ITC can be reclaimed and time limit specified in section 16(4) shall not be applicable for re-availing the credit.
  • In case of partial payment, only partial ITC reversal is required on proportionate basis.

📝 Note: Please remember these 2 relevant dates for the purpose of this para.
Calculation of 180 days: from date of invoice
Calculation of Interest: from date of taking credit

GST Audit Checklist

We have compiled most common mistakes detected during GST Audit and have linked detailed articles on those topics for your reference. To visit click on GST Audit Checklist.

ITC Matching Software

To match the ITC taken by the taxpayer with the invoices uploaded in GSTR-2A, you can use our software GST Doctor ITC Matching Software which is available on Microsoft Store.

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