“Understand GST ITC Reversal: Section 16 of CGST Act, 2017 mandates reversal of input tax credit if payment for inward supply is not made within 180 days. Learn the nuances to avoid penalties.”

The provisions of Goods and Services Tax Act, 2017 were expected to be very simple and easy to comply with. On the contrary the manner in which the law was introduced as well as subsequent clarification changes etc.  have resulted in increasing the complexity substantially. Over the years most of the registered persons have become more informed with respect to nuances of the provisions.

One such provision is with respect to reversal of input tax credit [ITC] in case of non-payment of consideration with respect to Inward supply of goods or services on which the said GST was levied by the seller of the goods or the provider of services.

GST ITC Reversal

Section 16 of the CGST Act, 2017 contains necessary provisions with respect to availment and reversal of input tax credit on inward supply of goods and services. The said section provides that the payment for the said inward supply of goods and services has to be made within a period of 180 days from the date of invoice. Normally credit for ITC is availed immediately on purchase of goods or services as the case may be but in a situation where the payment for such goods and services is not made within a period of 180 days then the input tax credit which has been availed at the time of purchase of the said goods or at the time of taking the services then the registered person is under an obligation to reverse the credit which has been taken. The credit would be available to the said person as and when the payment is made later on. Although initially a period of 180 days has been allowed to make the payment of consideration for inward supply of goods and services but once the reversal is made due to non-payment within 180 days there is no time limit and as and when the payment is made may be even after years the registered person can avail the said credit in the year in which the payment is ultimately made. In the case of part payment beyond a period of 180 days then the proportionate amount of ITC will have to be reversed.

It is important to identify for every transaction the reversal requirement of input tax credit as mentioned above otherwise the registered person becomes liable for penalty as well as interest. The concerned persons dealing with GST compliance have to make note and ensure the timely reversal to avoid subsequent levy of interest and penalty by the audit teams later on.

Author Bio

Qualification: CA in Practice
Company: Sunil Arora & Associates
Location: Delhi, Delhi, India
Member Since: 02 Mar 2023 | Total Posts: 7
Mr. Sunil Arora, the senior most partner of the firm (Sunil Arora & Associates) has an experience of over 40 years in the matters related to finance and taxation. His special forte includes direct tax consultancy in areas of capital gains, search and seizure, survey and representation before the View Full Profile

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  1. JMNAGARAJA says:

    I would like to know why our developer demanded and forced us to pay him GST from land owners we are not purchaser or he is not saler no money transactions between us please clear our doubt He collected 5% on flat value

  2. CMÀ ASIM SAHA says:

    In order to track the payment of every input AI may help to identify. Some time input received with tax invoice but entered in the system lately. VIM application or Bill watch system may help auditor to track.

    1. Deepak says:

      we got a notice on the same ground depite of the fact that the debt was settled due to commercial credit note .
      need help on that

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February 2024