Reversal of Input Tax Credit


As GST implementation has crossed the period of 180 days and there must be some dealers who have not paid the invoice amount to the supplier which were issued in July and availed ITC, all those dealers who availed ITC on inward supplies but have failed to pay the invoice amount to the suppliers within 180 days from the date of issue of invoice by the supplier have to reverse the ITC taken, the time it crosses the period of one hundred eighty days.

i.e., if a dealer has received the goods on 1st July and could not pay the bill amount till 31st December 2017, an amount equal to the input tax credit availed by the recipient dealer, shall be added to the output tax liability by the supplier through cancelling his invoice. Now dealer will have to pay reversed amount along with output tax liability of December 2017 while filing GSTR2 in January 2018.

What is ITC?

ITC stands for “Input Tax Credit’’ means the credit of input tax

Meaning of Output Tax?

Output Tax means the CGST/SGST chargeable under the respective act on taxable supply of goods or services or both made by taxable person or by his agent and excludes tax payable by him on reverse charge basis.

Manner of taking Input Tax credit

Every registered taxable person shall be entitled to take credit of Input in respect of any supply of goods or services or both to him which are used or to be used in the course of his business only if:

  1. The registered person is in possession of tax invoice or debit note issued by a supplier
  2. The registered person has received the goods or services or both
  3. The tax charged in respect of such supply has been actually paid to government either in cash or through utilization of input tax credit admissible in respect of the said supply by the supplier
  4. The registered person has furnished the return under section 39

Steps to reversal of Input tax credit

Supplier will issue invoice to Recipient.

He will charge tax amount.

Recipient will claim the GST charged in the invoice

Recipient will receive the goods.

Recipient could not pay invoice amount even after 180 days of invoice date

Supplier will cancel the invoice or will issue the credit note

ITC charged in the invoice will be reversed by the supplier

Recipient will pay the reversed amount as his output tax liability,

Interest will also be payable by the recipient on that amount

Provided also that the recipient shall be entitled to avail of the credit of input tax on payment made by him of the amount towards the value of supply of goods or services or both along with tax payable

Reversal of input tax credit taken shall not be applicable where tax is to be paid on reverse charge basis.

Registered person shall not be entitled to take Input tax credit

If supplier has claimed Input Tax Credit on capital goods under the provision of Income Tax Act, 1961, he cannot claim depreciation on the tax amount.


The details of outward supply, invoice details and the amount of credit availed shall be furnished in Form GSTR-1 and GSTR2 respectively for the month immediately following the period of 180 days from the date of issue of invoice. The amount added to the output tax liability of the taxable person for the month in which the details are furnished.

Interest on such amount shall be payable and it will be calculated from the date of availing credit on such supplies in books till the date when the amount was reversed and added to the output tax liability.

Anytime later if recipient or dealer pays the supplier invoice amount or the value of supply and tax, he can re-avail the credit.

Note – Please note that the above article is for education purpose only. This is based on our interpretation of laws which may differ person to person. Readers are expected to verify the facts and laws.

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