The 180-day rule (Rule 37): the ITC reversal nobody warns you about
Claim ITC on an invoice, then leave the supplier unpaid past 180 days, and the law takes the credit back — with 18% interest for every day you held it.
Most GST problems announce themselves: a missing invoice, a notice in the inbox. Rule 37 is quieter. Nothing happens on day 180 — no alert, no portal message. The liability just exists, compounding at 18%, waiting for an audit to find it.
The rule in one table
| Question | Answer | |---|---| | Trigger | Supplier unpaid (value + tax) 180 days after invoice date | | Consequence | Reverse that invoice's ITC in GSTR-3B (Table 4(B)(2)) | | Interest | 18% p.a. under Section 50, from claim date to reversal | | Partial payment | Proportionate reversal | | After you pay | Re-claim the ITC — no time limit; interest stays paid | | Legal basis | Second & third provisos to Section 16(2), Rule 37 CGST Rules |
A real ₹ example
Patel Distributors buys stock worth ₹5,00,000 + ₹90,000 GST on 1 April, claims the ₹90,000 in April's 3B, and — cash being tight — pays the supplier only in December.
- Day 180 lands on 28 September. From October's 3B, Patel must reverse ₹90,000.
- Interest: 18% on ₹90,000 for roughly the six months the credit was held ≈ ₹8,100 — pure cost, never refunded.
- After paying the supplier in December, Patel re-claims the ₹90,000 in December's 3B.
Net effect of slow payment: an interest-bearing loan from the government you never asked for.
Who gets bitten
- Distributors and wholesalers running on 60-90-120 day credit cycles — one slipped cycle and you're at 180.
- Anyone holding payment as leverage against a supplier who hasn't filed GSTR-1 (a tactic we recommend in the right dose): hold the tax portion, watch the clock.
- Disputed deliveries where the argument outlives 180 days — the invoice you're fighting about still carries a ticking reversal.
- Businesses whose books show supplier advances/adjustments that don't map cleanly to invoices — proportionate rules get messy fast.
The compliance routine
- Age your creditors by invoice date monthly — most accounting software can show >150-day unpaid supplier invoices.
- At 150 days, decide: pay, negotiate a resolution, or accept the reversal knowingly.
- If reversing: do it in the 3B of the period the 180th day falls in, with interest — voluntary reversal is vastly cheaper than an auditor finding it two years later (Section 73 adds penalty).
- After payment: re-claim in that period's 3B, and document the payment-to-invoice mapping.
How GST Sathe tracks it for you
GST Sathe (Dukaan+ AI plan) links every claimed ITC entry to its invoice date and your payment records, warns you at day 150, computes the exact reversal and interest if you cross 180, and reminds you to re-claim after payment. The rule nobody warns you about, with warnings. See pricing →
Sources
- Section 16(2) second & third provisos, CGST Act; Rule 37, CGST Rules (as amended w.e.f. 1 Oct 2022)
- Section 50 (18% interest); GSTR-3B Table 4 ITC reporting advisory
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When does the 180-day clock start?+
From the invoice date — not the delivery date, not the due date you agreed with the supplier. Long credit periods eat straight into the 180 days.
What if I paid only part of the invoice?+
The reversal is proportionate: unpaid 40% of the invoice means reversing 40% of that invoice's ITC, with interest on that portion.
Do I get the ITC back after paying the supplier?+
Yes — re-claim it in the GSTR-3B of the period in which you pay, with no time limit on the re-claim. The 18% interest already paid is not refunded.
Does Rule 37 apply if I'm holding payment because the supplier hasn't filed GSTR-1?+
Yes — Rule 37 doesn't care why you haven't paid. The safer play is to hold only the GST portion and keep the 180-day clock in view, escalating the supplier hard before it runs out.
Your GST money, back in your pocket
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