The 180-Day Rule for Input Tax Credit

Most input tax credit gets reversed because of something a supplier did or failed to do. This one is entirely your own doing: you bought something, took the credit on it, did not pay for it, and after 180 days the law takes the credit back. It catches careful finance teams constantly, because the clock does not run on the date your accounts payable system thinks the invoice is due. It runs from the date printed on the invoice, and nothing in your payment workflow tracks that by default.

What the rule says, and how the 180 days are counted

The condition lives in the second proviso to Section 16(2) of the CGST Act: where you have availed credit on a supply but fail to pay the supplier the value of that supply along with the tax payable on it within 180 days from the date of issue of the invoice, the credit must be paid back along with interest under Section 50. Rule 37 of the CGST Rules is the machinery. Two phrases in that sentence do most of the damage.

"Along with the tax." Paying the taxable value and parking the GST until the supplier's filing is confirmed fails the test, however prudent the intention.

"From the date of issue of the invoice." Not from receipt, not from GRN, not from approval, and above all not from the payment due date your ERP calculated from your credit terms. The two dates diverge by exactly the length of those terms.

The conditions that apply before any of this matters are in input tax credit rules explained. The 180-day rule is a condition subsequent: the credit was correctly taken and withdrawn later, which is why it never surfaces as a claim-time validation error.

Only the unpaid portion is reversed

Rule 37 requires reversal of credit proportionate to the amount not paid, and this is the most frequently mishandled part of the rule — almost always in the direction of over-reversal. A ₹10 lakh invoice with ₹40,000 of retention outstanding on day 180 produces a reversal on ₹40,000 of value, not on ₹10 lakh.

The arithmetic is a ratio. Take the invoice value plus tax still unpaid on the 180th day, express it as a fraction of the total, and apply that fraction head-wise to the credit you took.

Several things that look like non-payment are not:

• A credit note that reduces the invoice. Where the supplier has issued a GST credit note and reduced their output tax, the invoice value has come down and there is nothing further to pay. The same goes for a discount already built into the invoice value.
• A set-off against a receivable from the same party. Where you and your supplier run a genuine two-way account and settle by book adjustment, the amount is discharged. Keep a signed settlement statement — this is the variant most likely to be questioned.
• An advance already paid. It counts, provided it has been adjusted against the invoice rather than left sitting in a vendor advance account.

What is not a defence: that the invoice is disputed, that the goods failed a quality hold, or that the retention is contractually payable a year later. The rule asks whether you paid, not whether you were obliged to yet.

A worked example on one invoice

A contractor issues an invoice dated 14 May 2026 for ₹20,00,000 plus ₹3,60,000 IGST — ₹23,60,000 in total. The invoice reaches your GSTR-2B and you claim ₹3,60,000 of credit in the May 2026 GSTR-3B. Everything so far is correct.

Counting 180 days from 14 May 2026 lands on 10 November 2026. Your purchase order gave 60-day terms, so the ERP flagged this invoice as overdue back in July; that flag is not the one that matters.

By 10 November you have released ₹14,16,000 — 60% of the invoice — and withheld ₹9,44,000 against an open snagging list. The unpaid fraction is 40%, so the reversal is 40% of ₹3,60,000:

₹1,44,000 reversed in Table 4(B)(2) of the November 2026 GSTR-3B, filed in December, together with interest under Section 50 on that amount.

In February 2027 the snagging list closes and you release ₹9,44,000. In the February 2027 GSTR-3B you re-avail ₹1,44,000 — Table 4(A)(5), disclosed in Table 4(D)(1) as credit reclaimed that was reversed earlier. The credit is whole again, and the only permanent cost was three months of interest.

Note what the reversal was not: ₹3,60,000. Reversing the whole invoice would have surrendered ₹2,16,000 of perfectly good credit.

Where the reversal goes, and the interest that follows

The reversal belongs in Table 4(B)(2) of GSTR-3B — the "Others" row of the ITC reversal block, where reversals outside Rules 42 and 43 and Section 17(5) go. Put it in the return for the tax period in which the 180 days expired, not a later catch-up return, and split it head-wise exactly as the credit was taken. What belongs in each row of Table 4 is in the GSTR-3B filing guide.

Do not net it off against eligible credit in Table 4(A) instead. A reduced gross figure breaks your reconciliation against GSTR-2B and destroys the audit trail the re-availment depends on.

On interest: the credit goes back along with interest under Section 50, which carries a higher rate for credit wrongly availed and utilised — notified at 18% per annum — than the ordinary rate on delayed payment of tax. Which limb applies turns on the period and on whether the credit was merely availed or also utilised, and rates are amended by notification, so confirm the current position on cbic-gst.gov.in before computing anything. See also GST late fees and interest.

Taking the credit back once you pay

The third proviso to Section 16(2) is the part most write-ups skip. Once you make the payment of the value of the supply along with the tax, the credit is available again.

The important detail is that this re-availment is not subject to the time limit in Section 16(4). The ordinary deadline, explained in the ITC time limit under Section 16(4), does not cut off credit that was validly availed and reversed only because of the 180-day condition. Pay an FY 2024-25 invoice in 2027 and the credit comes back in 2027.

That creates a register to maintain: for every reversal, record the invoice, the supplier GSTIN, the head-wise amount and the return it was reversed in, and leave it open until payment goes out. Reversals nobody ever reclaims are a quiet way for working capital to leak.

The supplies the rule does not touch

Three categories sit outside the 180-day condition, and all three are common enough that applying the rule to them by mistake is a real risk.

Reverse charge supplies. Where tax on the inward supply is payable by you under reverse charge, the condition does not apply — you are not paying that tax to the supplier at all, but to the government directly. Which supplies these are is set out in the reverse charge mechanism under GST.

Deemed supplies under Schedule I made without consideration. Schedule I treats certain transactions as supplies although no consideration passes — stock transfers between distinct persons being the everyday case. There being no consideration by design, the value is deemed paid.

Value added under Section 15(2)(b). Where the taxable value includes an amount the supplier was liable to pay but which you incurred, and which is not part of the price charged, that added value is deemed paid — you cannot be asked to pay the supplier a figure the valuation rules constructed rather than invoiced.

Rule 37 is not Rule 37A

The two rules are one character apart and answer completely different questions. Confusing them makes teams monitor the wrong data entirely.

The full treatment of the other one is in Rule 37A and ITC reversal when a supplier does not file. One invoice can fail both tests at once: you withheld payment because the supplier went quiet, and the supplier went quiet because the business was failing.

The ageing report your AP team is missing

One control prevents Rule 37 reversals, and it is not a tax control. It is a report.

Build an open-payables ageing keyed on days since the invoice date, alongside the conventional one keyed on due date. Bucket at 120, 150 and 180 days, review it monthly in the same meeting as the payment run, and treat the 150-day bucket as the action list: those invoices either get paid this cycle or get flagged for reversal in the month they cross 180.

Four situations produce almost all the entries on that report:

• Retention money on construction and project contracts, contractually payable long after 180 days.
• Disputed invoices sitting in an approval queue while commercial terms are argued.
• Quality holds where goods were received and booked but payment is blocked pending inspection.
• Vendor advances paid and never adjusted against the invoice, so the ledger shows unpaid when the cash left months ago. Clear these before you run the report, or the report will lie to you.

And then the point that connects this rule to the other one. Both reversals start in the same place: your vendor master. A GSTIN that is live and filing is the precondition for the credit surviving at all — if the registration is wrong the invoice was never creditable, and if the supplier is not filing GSTR-3B, paying inside 180 days saves you from Rule 37 and does nothing whatever for Rule 37A. Run both controls in the same monthly review: the accounts payable half is in vendor GST verification for accounts payable, the filing-status half in how to check a supplier's GST return filing status.

Across a whole vendor master, that check is a scheduled job rather than a browser exercise: one call per GSTIN returns registration details and GSTR filing history together, at ₹0.50 per verification. To spot-check a few vendors before the next payment run, the free GSTIN lookup allows five a day with no signup.

Frequently asked questions