# Reversal of ITC — Non-Payment to Supplier within 180 Days

## The Rule

Where a recipient fails to pay the supplier the value of supply along with tax payable thereon within 180 days from the date of invoice, the recipient must:

Reverse the ITC already availed, AND
Pay interest @ 18% p.a. on the reversed amount.

## Re-credit on Subsequent Payment

Once the recipient subsequently makes the payment to the supplier, the ITC can be re-availed (re-credited). There is no time limit on this re-availment.

## Exceptions — When 180-Day Rule Does NOT Apply

The 180-day payment requirement is NOT applicable in the following cases:

### 1. Supplies under Reverse Charge Mechanism (RCM)

Where tax is payable by the recipient on reverse charge basis, the question of paying the supplier (along with tax) does not arise in the same manner.

### 2. Supplies covered under Schedule I

Deemed supplies without consideration (e.g., supplies between related/distinct persons) — since no consideration is payable, the 180-day rule cannot apply.

### 3. Supplier's Obligation Met by Recipient

Where the value of the supply includes an amount that the supplier was liable to pay but was actually paid by the recipient (added to value under Section 15(2)(b)), such amount is deemed to have been paid to the supplier.

## Companion Rule — Section 37A (ITC Reversal due to Supplier's Default)

Where a supplier fails to file GSTR-3B, the ITC claimed by the recipient (based on GSTR-1 / IFF) must be reversed.

### Timeline Example (FY 2024-25 / FY 2025-26):

Supplier files GSTR-1 in May.
Recipient avails ITC in GSTR-3B of May.
If supplier does NOT file GSTR-3B by 30th November of the following FY → recipient must reverse the ITC.
If not reversed → interest @ 18% p.a. is payable.
If supplier subsequently files GSTR-3B → recipient can re-avail the ITC.

Worked example

### Example 1

Example — 180 Day Reversal:

ABC Ltd. received goods worth ₹1,00,000 + GST ₹18,000 vide invoice dated 1st January 2026 and availed ITC of ₹18,000 in January's GSTR-3B. ABC failed to pay the supplier till 30th June 2026.

→ 180 days from 1st January 2026 = 30th June 2026.

→ Since payment is not made within 180 days, ABC must reverse ITC of ₹18,000 along with interest @ 18% p.a. from the date of availment till the date of reversal.

→ When ABC actually pays the supplier (say in August 2026), it can re-avail ₹18,000 as ITC without any time limit.

### Example 2

Example — RCM Exception:

XYZ Ltd. received legal services from an advocate (RCM applicable). Even if XYZ does not pay the advocate within 180 days, the ITC need NOT be reversed because RCM supplies are EXCLUDED from the 180-day rule.

### Example 3

Example — Section 37A:

Supplier 'P' filed GSTR-1 for May 2025 showing supply to recipient 'R'. R availed ITC of ₹50,000 in May 2025 GSTR-3B. However, P did NOT file its GSTR-3B for May 2025 by 30th November 2026.

→ R must reverse ₹50,000 ITC. If not reversed, interest @ 18% p.a. applies. If P later files its GSTR-3B, R may re-avail the credit.

⚠️ Common exam mistakes

Counting 180 days from the date of receipt of goods — it must be counted from the date of INVOICE.
Reversing ITC on RCM supplies for non-payment within 180 days — RCM is an exception.
Forgetting to pay interest @ 18% p.a. along with the reversal — interest is mandatory.
Assuming there is a time limit for re-availment after subsequent payment — there is NO time limit for re-credit after payment.
Ignoring Section 37A reversal obligations when the supplier defaults in filing GSTR-3B.
Treating Schedule I supplies as subject to the 180-day rule — they are specifically excluded.

Bare-Act text Second & Third Provisos to Section 16(2); Section 37A · Central Goods and Services Tax Act, 2017 · click to expand

Second Proviso to Section 16(2): 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 paid by him along with interest payable under section 50, in such manner as may be prescribed. Third Proviso: 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.

Now that you've read this — what's next?

Move from understanding → mastery in 3 clicks. Each option below picks up from this lesson's topic.

🔥 Drill 5 Qs on this → ✍️ Adaptive practice →

Reversal of ITC on Non-Payment to Supplier (Second Proviso to Section 16(2))

Worked example

⚠️ Common exam mistakes