Does ITC Reversal Applicable in GST, if recipient fails to pay to the Supplier within 180 Days?

Yes, ITC reversal is applicable if recipient fails to make the payment to the supplier within 180 days along with interest.

First let us understand what is ITC Reversal & what are situations that may arise.

What is ITC Reversal ?

ITC Reversal means reversal of ITC along with 18% interest on it which has been already claimed by recipient in his GSTR-3B as input for purchase of goods /services.

As per Sec 16(2) where a recipient fails to pay to the supplier, the amount towards the value of supply of goods or services along with tax within period of 180 days from the date of issue of invoice, an amount equal to the input tax credit availed by the recipient shall be added to his output tax liability, along with 18% interest.

Let us understand through an example.

For Example:

ABC Ltd. sold goods to XYZ Ltd. worth Rs 1,000 + GST @ 18% i.e. Rs.180 on 30/03/2019. XYZ ltd has availed credit on 20/04/2019 (date on which GST 3B of Mar 2019 has to be filed). But failed to pay the total invoice amount (1180) to the supplier till September 2019 ie, within 180 days. So XYZ Ltd. has to reversal, ITC already availed along with 18% interest in September month GSTR-3B

Calculation of ITC Reversal

ITC Reversal = (Tax Amount/ Invoice Value) * Unpaid amount

Following are the cases which may arise on ITC Reversal

  • Paid only Taxable value (tax amount pending).
  • Paid only Tax amount (taxable value pending).
  • Didn’t pay any amount.
  • Paid partly.

Let us discuss briefly each cases regarding ITC Reversal & Interest

Invoice value Rs.1180 Amount Paid within 180 days of Invoice date
Taxable value Rs.1000 Rs.1000 paid Unpaid (Nil) Unpaid (Nil) Partly Rs.500
Tax amount @ 18% Rs.180 Unpaid (Nil) Rs.180 Paid Unpaid (Nil) Partly Rs.90
ITC to be reversed 180/1180*180 180/1180*1000 180/1180*1180 180/1180*590
ITC Reversal Amount 27.48 152.54 1180 90

Calculation of Interest on ITC Reversal

Interest = {ITC Reversal Amount x 18% x (As on date – invoice date)} /365
Interest @ 18% 27.48*18%*184/365 152.54*18%*184/365 1180*18%*184/365 90*18%*184/365
2.49 13.84 107.07 107.07

Can ITC reversal be claimed again?

Yes, ITC Reversal can be claimed back on total payment of invoice value to vender but interest on ITC Reversal can’t be claimed back in GSTR-3B as ITC.

Disclaimer:"The information contained herein is only for informational purpose and should not be considered for any particular instance or individual or entity. We have obtained information from publicly available sources, there can be no guarantee that such information is accurate as of the date it is received or it will continue to be accurate in future. No one should act on such information without obtaining professional advice after thorough examination of particular situation."

Prepared By

Umesh B

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Ankit C Shetty