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Reversal of Input Tax Credit under GST Regime

If the supplier of goods or service is not paid within 180 days of the issue of the tax invoice, the recipient has to reverse the ITC availed and show it in the GSTR – 3B of the December 2017 to be filed by 20th January 2018.

If the supplier of goods or service is not paid within 180 days of the issue of the tax invoice, the recipient has to reverse the ITC availed and show it in the GSTR – 3B of the December 2017 to be filed by 20th January 2018. This provision is similar to the provision we had in the erstwhile Service Tax. Though it was there most of the taxpayers were not following it due to some reason or the other. In GST as reporting is online and data of GST returns is shared with various stakeholders it becomes mandatory in nature to follow this provision.

This means that the business has to maintain the creditors aging and basis on that they have to reverse the Input Tax Credit. In big organizations it will be very challenging as they have lot transactions and maintained from various locations. This process would be very easy if the accounting or ERP they are using supports the same. Though it looks like a complex process but it would be simple if the technology is used in the process.

The reversal of the ITC is based on the provisions given in Section 16 of the CGST Act

Provided further that where a recipient fails to pay to the supplier of goods or services or both, other than the supplies on which tax is payable on reverse charge basis, the amount towards the value of supply along with tax payable thereon within a period of one hundred and eighty days from the date of issue of invoice by the supplier, an amount equal to the input tax credit availed by the recipient shall be added to his output tax liability, along with interest thereon, in such manner as may be prescribed:

All the supplier invoices which are issued from 1st July 2017 to 3rd July 2017, if they are unpaid, ITC has to be reversed along with interest.

While filing GSTR – 3B the following options have to be selected at the time of filing for reversal of ITC on account of non-payment to the supplier of goods or services or both. The reversal of ITC should be reported in ITC Reversal of GSTR – 3B in “Others”

Interest should be reported in Interest of Table 5.1 in GSTR – 3B.

As and when the supplier is paid, ITC is eligible to be claimed, if paid partially then ITC is also eligible on the pro- rata basis and it can be claimed while filing the GSTR – 3B as and when it is filed.

The reversal and reclaim is on self-policing mechanism by the taxpayers and the same can be verified by the Government basis on the financial statements being filed by the taxpayer from time to time. It can be verified even during the GST Audit and if any mismatch is there the same can be reversed also.

Reversal of the ITC is not new in the Indirect Tax Regime in India, it is also implemented in other countries. In Malaysia also, it there but the only difference there is the supplier of the goods and services can apply for the refund of the taxes paid by him. In India also, we should have a similar process so that the supplier of goods and services will not be deprived of the cash flows.

This will also have an impact on the retention money which is held back by the recipient as per the contractual obligations. Such retention money will be paid back after an agreed period, even this is applicable to such cases also. The trade and industry have to re-visit their contracts and business process. This again clearly shows that GST is not a mere tax reform but a business process reform.

View Comments (7)

  • How to reverse only one component if taken in excess viz. - only CGST or Only SGST because on portal when we enter one component another is automatically there for an equal amount.

  • I have shown closing balance excess in TRANS 1 at CGST part.
    is there any way to rectify it.

  • Hello Sir/Madam,
    We are merchant exporters, we buy material from manufactures and export out side of India. My doubt was we purchased material from manufactures and exported and ITC taken. but for some reasons my manufacturer given 25% discount on purchase value. Already we had taken ITC on that particular purchase . so we have decided that we will pay/reverse the ITC/GST on excess amount taken on 25% discounted value. but how to reverse it? please advice?
    1. reversal on GSTR-3B on next month?
    2.raise the challan for excess amount taken on 25% discounted value? how to offset it.

    Kindly reply

  • I have claimed excess input without bill by mistake. How to reverse it. Is this attract interest ?
    Cgst Amount was 2691.
    And sgst amt was 2691.

  • Dear Sir
    I am into business of share sub broker,
    last year I purchased a bike and claimed ITC of CGST and SGST against IGST which I used to pay.But now I understand that it was wrong.
    Please guide as whether I have to pay interest on that amount also, and from which date
    Date of purchase. 13/10/2017
    Itc claimed. Rs 4860 CGST
    4860 SGST
    GSTR3B filed on. 11/11/2017
    ITC adjusted. Rs 4860 on 11/11
    Rs 4860 on 8/04/2018
    Please guide me

    Regards
    Saurabh Rastogi

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