Rule-37 of GST Act:- Reversal of ITC in the case of non-payment of consideration-
1. A registered person who has availed the ITC of Input, Input services or capital goods in GSTR-3B but recipient fails to pay the consideration to the supplier within 180 days from the date of invoice then recipient needs to reverse the ITC after the expiry of this period.
2. Example:-
| Taxable value | 1,00,000 |
| IGST | 18,000 |
| Invoice value | 1,18,000 |
| TDS u/s 194J | 10,000 |
| Balance outstanding | 1,08,000 |
| Payment deposited | 50,000 |
How much ITC will be reversed ?
ITC will be reversed in proportion to the unpaid amount. The TDS factor here plays an important role.
Let us understand the provision:-
ITC will be reversed in proportion to the unpaid amount (Formula for calculation of reversal amount is GST amount divided by invoice value multiplied by unpaid amount).
Reversal will be 18,000/1,18,000*58,000= 8,847/-
If an unpaid amount is considered 68,000 then it will be wrong computations.
3. ITC will be disclosed in Table-4B(2) of GSTR-3B. It is considered as a temporary reversal of ITC.
4. Reporting in GSTR-3B:- After payment of consideration, recipient can claim the remaining ITC which is reversed in past months. Now, at the time of re-claiming of reversed ITC it will be shown in table-4A(5) as well as in table-4D(1). It will also reflect in Electronic Credit Reversal & Reclaimed Statements.
5. At the time of availability of ITC, time limit for claiming ITC will not be applicable in Rule 37.
6. GSTR-9:- It will be reported in Table-7 of GSTR-9.
Note:- ITC reversed under this rule will be shown in table-4B(2). It will not be shown in table-4A(5) by netting off with other ITC.
7. RCM Transactions:-
No reversal of ITC is required in case of non-payment to suppliers if supplies are covered under RCM.
8. Blocked credit u/s 17(5):-
If ITC is ineligible then there will be no reversal because we have not claimed the ITC.
9. Interest calculation:-
Interest will be levied from the date of availment of ITC till date of reversal of ITC in GST-3B instead of 180 days from the date of invoice. Interest rate will be 18% p.a. Interest will be charged on the ITC reversal amount.
Note: This article is intended to provide general guidance on Rule 37 and is based on current GST provisions. For specific queries, it is advisable to consult a professional tax advisor.
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