ITC Reversal for Non-Payment Within 180 Days: The GST Rule

If you claim input tax credit (ITC) on a purchase but don’t pay your supplier within 180 days of the invoice date, GST law makes you reverse that credit, with interest. The rule is in the second proviso to Section 16(2) of the CGST Act and Rule 37 of the CGST Rules. When you pay later, you can claim the credit back, and no time limit applies to that.

ITC is the GST you paid on purchases that you deduct from the GST you collect on sales. The idea behind the rule is simple: you shouldn’t keep a tax benefit for a bill you haven’t paid.

What does the 180-day rule say?

You must pay the supplier the value of the supply plus the GST on it within 180 days from the date of the supplier’s invoice. If you don’t, you reverse the ITC you claimed on that invoice. You only reverse the part that matches the unpaid amount.

Key points from Rule 37, as amended from 1 October 2022:

• The reversal goes in the GSTR-3B for the tax period immediately after the 180 days end.
• You reverse only the ITC proportionate to the amount not paid, so a part payment means a part reversal.
• Interest under Section 50 is payable.
• When you later pay the supplier, you can re-avail the ITC.
• The Section 16(4) time limit does not apply to reclaiming credit that was reversed earlier (Rule 37(4)).

Which purchases are outside the 180-day rule?

Situation	Does the 180-day rule apply?
Normal purchase from a registered supplier	Yes
Purchases where you pay GST under reverse charge	No, excluded by Section 16(2) and Rule 37
Supplies without consideration listed in Schedule I (for example, between related persons or branches)	No, treated as paid
Amounts added to the value under Section 15(2)(b) (costs the supplier owed but you paid directly)	No, treated as paid
Capital goods bought from a registered supplier	Yes

For reverse charge purchases, see our reverse charge guide.

How do I calculate the ITC to reverse?

Use this formula:

ITC to reverse = ITC claimed on the invoice × (unpaid amount ÷ total invoice value including GST)

Example: On 1 April 2026 you buy materials from a supplier in your own state for ₹2,00,000 + 18% GST (₹18,000 CGST + ₹18,000 SGST). Invoice total: ₹2,36,000. You claim ₹36,000 ITC in April’s GSTR-3B. By 28 September 2026 (day 180) you have paid ₹1,18,000, which is half. Unpaid share: ₹1,18,000 ÷ ₹2,36,000 = 50%. You reverse 50% of ₹36,000 = ₹18,000 (₹9,000 CGST + ₹9,000 SGST), plus any applicable interest, in the first GSTR-3B you file after the 180 days end. When you pay the balance in, say, December 2026, you reclaim ₹18,000 in December’s GSTR-3B.

To count the 180 days, start from the invoice date, not the date you received the goods or booked the bill.

Is interest payable on reversed ITC?

Yes. Rule 37 says the reversal is made “along with interest payable thereon under section 50”.

Under Rule 88B, interest on ITC that was wrongly availed is charged at 18% a year, and only to the extent the credit was actually used to pay tax. If your electronic credit ledger always had enough balance to cover the credit in question, the interest may be nil or small.

Watch out: Experts disagree on when interest starts: from the date you first claimed the ITC, or from day 181. The amount can be significant on large or long-overdue bills. Take professional advice before you calculate interest on a big reversal.

Interest must be paid in cash. For how interest on GST is calculated generally, see our guide to late fees and interest.

How do I report the reversal and reclaim in GSTR-3B?

GSTR-3B has separate tables for reversals you can reclaim and reversals you can’t, under Circular 170/02/2022-GST.

1. Reversal: report the ITC proportionate to the unpaid amount in Table 4(B)(2) (reversals that can be reclaimed). Do not use 4(B)(1), which is for permanent reversals such as blocked credits.
2. Interest: pay it in cash through GSTR-3B (or DRC-03 if you are paying separately).
3. Reclaim: in the month you pay the supplier, claim the credit back in Table 4(A)(5) (“All other ITC”) and also show the same amount in Table 4(D)(1) (ITC reclaimed that was reversed earlier).
4. Check the Electronic Credit Reversal and Re-claimed Statement on the portal. It tracks reversed credit, and the portal limits reclaims to the balance shown there.

Tip: Your annual return also asks about ITC reversed and reclaimed. Keeping a simple register of invoice date, day 180, amount paid, ITC reversed and ITC reclaimed makes filing GSTR-9 much easier.

How do I track the 180 days in practice?

1. Add the due date to every purchase entry (invoice date + 180 days). Most accounting software can show ageing of creditors.
2. Run a monthly creditor ageing report and flag bills older than 150 days.
3. Pay or plan the reversal. Before filing GSTR-3B, list bills that crossed 180 days in the previous period and calculate the reversal.
4. Record payments against specific invoices. Lump-sum “on account” payments make it hard to prove which invoice was paid.
5. Reclaim promptly in the month of payment so the credit isn’t forgotten.

Common mistakes

• Reversing the full ITC on a part-paid invoice. Since October 2022, reversal is only for the unpaid share.
• Applying the rule to reverse charge purchases. They are excluded.
• Using the wrong table. Reporting in 4(B)(1) instead of 4(B)(2) makes the credit look permanently lost and complicates the reclaim.
• Forgetting to reclaim. Many businesses reverse correctly but never claim the credit back after paying.
• Counting from the goods receipt date instead of the invoice date.
• Netting off debit notes or disputes without documentation. If you are holding back payment over a quality dispute, keep a record, and get a credit note if the price is actually reduced.

What to do next

Set up a creditor ageing check as part of your monthly GST close, alongside your GSTR-2B reconciliation.

If keeping track of payments and reversals across many suppliers is hard, our bookkeeping service maintains creditor ageing and ITC registers for you. You can also request a callback if you have a large overdue balance and need help working out interest.