When must I reverse input tax credit because the supplier has not paid tax, or I have not paid the supplier within 180 days?

Rule 1: you have not paid the supplier within 180 days

If you do not pay the value of the supply plus tax within 180 days of the invoice date:

• Add back the credit (in proportion to the unpaid amount) in GSTR-3B for the month after the 180th day.
• Pay interest at 18% from the date the credit was used, if it was used. Interest is payable only where the credit was actually availed and utilised.
• When you pay the supplier, re-claim the credit. The time limit under section 16(4) does not apply to this re-claim.

The rule does not apply to tax paid under reverse charge, to supplies treated as made without consideration (Schedule I), or to amounts added to the value under section 15(2)(b).

Rule 2: the supplier has not paid the tax

Credit is allowed only if the tax has actually been paid to the Government (section 16(2)(c)). Under rule 37A:

• If the supplier reported the invoice in GSTR-1 but has not filed GSTR-3B for that period by 30 September after the end of the year,
• you must reverse the credit in a GSTR-3B filed by 30 November of that year;
• you can re-claim it in the month the supplier files the GSTR-3B.

The portal shows such invoices in a separate table of GSTR-2B.

The starting conditions

Credit is available only if the invoice appears in your GSTR-2B, after you have acted on it in the Invoice Management System (IMS), and you have the invoice and received the goods or services. See conditions for input tax credit.

Practical points

• Run a monthly ageing of payables with a flag at 150 days.
• Partial payments are applied first to the value, then to the tax; reverse the proportion that is unpaid.
• Keep evidence of payment by banking channel, which settles disputes later.
• Interest at 18% can be worked out with our GST interest calculator.