Under GST law, businesses are entitled to claim Input Tax Credit (ITC) on purchases. However, there’s a critical compliance clause many overlook — ITC must be reversed if the supplier’s invoice is not paid within 180 days.
📌 What the Law Says
As per Section 16(2)(d) of the CGST Act:
“If the recipient fails to pay the supplier (invoice value + GST) within 180 days, the claimed ITC must be reversed, with interest.”
💡 Hemant Consulting’s Key Insights
1️⃣ Cash Flow Risk
Delayed payments result in reversed ITC + interest. This impacts your working capital and increases short-term tax liability.
2️⃣ Interest Penalty
You’ll need to pay 18% interest (Section 50) from the date the ITC was first availed — not from the 181st day.
3️⃣ Operational Challenge
Tracking 180-day payment deadlines across hundreds of invoices requires robust systems. Many businesses fail this silently and face audit issues.
4️⃣ Reclaim Opportunity
Once full payment is made to the supplier, you can reclaim the ITC in your next return, but with proper documentation and matching.
5️⃣ Audit Sensitivity
GST audits and departmental inquiries are increasingly focusing on this provision. Failure to comply may result in penalties under Sections 73/74.
6️⃣ Who’s Exempt?
Reversal is not required for:
Reverse Charge payments
Supplies without consideration (Schedule I)
✔️ Hemant Consulting Recommendations
✅ Use a 180-day ITC tracking sheet or ERP module
✅ Flag invoices nearing the reversal deadline
✅ Maintain invoice-wise reconciliation with GSTR-2B
✅ Schedule periodic supplier payment reviews
📞 Need help with GST ITC compliance?
Hemant Consulting specializes in:
Monthly ITC audits
Automated ITC reversal trackers
Vendor reconciliation & GST health checks
📧 Contact us today to ensure 100% compliant GST practices.
