GST : Importance for making payment in 180 Days to supplier

1. A registered taxpayer can claim an input tax credit (ITC) on the goods and/or services received from the supplier. This is subject to the condition that the taxpayer has paid for the goods and/or services and the tax payable on them within 180 days of the issue of the invoice.
2. However, in case of non-payment within 180 days, the ITC claim will be reversed per Rule 37 of GST. However, this provision does not apply to supplies on which GST is payable on a reverse charge basis.
3. Furthermore, the taxpayer will be liable to pay interest on the ITC claimed under CGST Act, 2017. Interest would be payable only after ITC has already been utilized. However, the method for calculating interest payable on ITC reversal has been covered under Rule 88 of the CGST rules.
4. Rule 88B(3): Amount on which interest is payable – Interest is not payable on input tax credit which was only wrongly availed. Interest will be payable @18%p.a only when the wrongly availed input tax credit is utilized.
5. Input tax credit utilized = amount of input tax credit availed (-) Balance available in the electronic credit ledger.
6. Period for which interest is payable –Interest is to be calculated for the period starting from the date on which the availed input tax credit was utilized till the date of reversal of such input tax credit.
7. Moreover, the re-availing of ITC is not subject to any time limit. Thus, unlike the earlier provision where taxpayers had to mandatorily make tax payments within 180 days of the invoice’s issue (per Section 16(4), ITC can be reclaimed whenever the invoice is finally paid.

FAQ’s

1)Can ITC be reclaimed if it was reversed according to Rule 37 of GST?

Answer: Yes, ITC can be claimed again when the taxpayer pays the invoice in full. It is not subject to the time limit of 180 days, as opposed to the initial provision.

2)What if an invoice is partially paid?

Answer: Then such ITC will be reversed only in proportion to the unpaid invoice and tax payable amount.

3)Is there a need to reverse the Input Tax Credit in regards to non-payment of consideration associated with supplies received that fall under the reverse charge mechanism?

Answer: The answer is no. You do not need to reverse the Input Tax Credit that is already availed in regards to inward supplies received under the mechanism of reverse charge.

Note:

Not Making payment to supplier within 180 Days is can become  one of the reasons for reversing Input Tax credit under GST.