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)
Author Bio
What if material sent back to original supplier after 180 days. In that case too, we have to reverse ITC?
If we receive a material from a supplier/ trader and part payment is done thru bank… balance payment through supply of another material to the same trader.. balance is nill after financial year… is it okay
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.
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?
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.
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.
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
Sir, from the article it is clear that we have to reverse input tax credit availed if amount of supplies including tax is not paid to vendor within 180 days from the issuance of invoice.
As per rule 34 subrule 2 of Input tax credit rule recipient should also add the output tax liability by the amount of input tax credit,
Request you to pls share accounting entries of creation of such output tax liability in books.
GST Query
Client is an auto anciliary sector.
It had import as well as export transaction from parent company.
Most of the times they setoff import payables with export receivables.
I believe that this practice cant comtinue post gst due to reversibility of credit if suppliers are not paid with in 180 days.
Requesting others views
How will department trace payment date of supplier invoice. whether we require to mention payment date in return filing?