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GST- ITC Reversal -If supplies are not paid within 180 days

We shall now deal with GST provisions in respect of reversal of input tax credit for supplies where payment is not made within one hundred eighty days. The due date is counted from the date of issue of invoice.

Reversal of Input Tax Credit if payment not made within 180 Days for the supplies

In continuation of Transaction Analysis series, we shall now deal with GST provisions in respect of reversal of input tax credit for supplies where payment is not made within one hundred eighty days. The due date is counted from the date of issue of invoice.

Clause 2 of the GST draft ITC rules, read with section 16 of CGST Act, 2017, deals with such transactions. The rule requires to furnish the details of such supply and the amount of input tax credit availed of in form GSTR-2, in the following month of such transaction. It requires this shall be added to the output tax liability.

The rule also provides such reversed amount is available for re-credit once the payment for the supplies are made.

Accounting entries in financials.

While Accounting the service invoice

Service Expense A/C — Dr

If it is Intra state

CGST A/C –  Dr

SGST A/C – Dr

If it is Inter state

IGST A/C   – Dr

To Sundry  creditors

While making payment to the Suppliers

Dr Sundry Creditors

To Bank

If payment to the supplier not made within 180 days

Dr  CGST reconciliation A/c

Dr SGST reconciliation A/C

Cr CGST A/C

Cr SGST A/C

Or

Dr IGST reconciliation A/C

Cr IGST A/C

Re-avail the credit while making payment to supplier

CGST  A/C – Dr

SGST  A/C –Dr

To  CGST reconciliation A/c

To  SGST reconciliation A/C

or

IGST  A/C – Dr

To IGST reconciliation A/C

Now, let us see how the above entries are reflected in the returns.

Furnishing the information in GSTR-2

ITC Reversal

ITC Reversal Summary

Conclusion

It is a perfect rule framed in line with the commercial parlance. Had the applicability of relevant sections is referred in the respective screen of the prototype return form released by GSTN, it could have been easy for the professionals as well as to the readers to relate them.

However, in our opinion, draft rules require the furnishing of detail of such invoice in GSTR2 and then create output tax liability.

Issues to be clarified:

The reversal and re credit of ITC is a resultant activity of payment to the supplies. GST do not expect the transaction to be reversed by the counter parties. Hence entry in GSTR2 by the receiver of supplies may result in reconciliation. If not how it is treated in GSTN.

Also, it is not clear whether it is to be added as a line item in ITC reversal screen, if so is this reason provided for in drill down menu (Refer screen shot 90 of this article)

View Comments (10)

  • Dear Sir,
    if purchase made from the party is before 1/7/2017 on which i had paid excise and vat then whether i have to take any action for the purpose of GST Reversal

  • I AM COTTON CLOTH SUPPLER IN BALOTRA[RAJ]. WE SALE OUR PRODUCT IN BIHAR, UP. WE SALE OUR PRODUCT ON CREDIT BASIS. THERE ARE SOME CLOTH MERCHANT IN THIS AREA NOT GIVING OUR PAYMENT AFTER 3-4-5 MONTH. WHAT I SHOULD DO LEGALLY.

  • How would GST department know whether the recipient has made payment or not. Also how can the creditor/support bring this to the notice of Department.

  • If we have paid principal amount of invoice within 180 days only tax amount ie gst amount is exceeding 180 day still gst needs to reverse?

  • Dear Sir,
    We are the supplier we sale the material in 60 days credit, we paid the tax also file GSTR1 we have not recd the payment bill is in april.

    can we reverse the output tax or not.

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