Reversing Credit When a Supplier Is Not Paid in 180 Days: Rule 37

A business takes credit in the month the supplier’s invoice reaches its GSTR-2B, usually well before it pays the invoice. GST allows credit to run ahead of payment, but only for 180 days. If the supplier is still unpaid, wholly or in part, at the end of that period, credit equal to the unpaid share comes back out of the ledger, with interest. When the supplier is paid, it goes back in. The rule is short, but working it means tracking the age and part-payments of every unpaid invoice, choosing the right return and row, computing interest that the rule does not fully define, and recording the reclaim so that the portal will accept it.

The condition itself is explained in Input Tax Credit: the Conditions in Section 16(2). This guide covers the procedure.

The provision and the rule

The second proviso to section 16(2) of the CGST Act states the obligation:

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 paid by him along with interest payable under section 50, in such manner as may be prescribed:

The third proviso restores the credit: “the recipient shall be entitled to avail of the credit of input tax on payment made by him to the supplier of the amount towards the value of supply of goods or services or both along with tax payable thereon”.

Section 138 of the Finance Act, 2023 substituted “paid by him along with interest payable under section 50” for the earlier “added to his output tax liability, along with interest thereon”, and inserted “to the supplier” in the third proviso. Both changes took effect on 1 October 2023 (Notification No. 28/2023-Central Tax).

Rule 37 of the CGST Rules supplies the manner. Sub-rules (1) and (2) were substituted, and sub-rule (3) omitted, by Notification No. 19/2022-Central Tax with effect from 1 October 2022. Notification No. 26/2022-Central Tax of 26 December 2022 then inserted three phrases into sub-rule (1), also with effect from 1 October 2022: “whether wholly or partly”, “or reverse”, and “proportionate to the amount not paid to the supplier”. Sub-rule (1) now reads, in its operative part:

A registered person, who has availed of input tax credit on any inward supply of goods or services or both, other than the supplies on which tax is payable on reverse charge basis, but fails to pay to the supplier thereof, the amount towards the value of such supply, whether wholly or partly, along with the tax payable thereon, within the time limit specified in the second proviso to sub-section (2) of section 16, shall pay or reverse an amount equal to the input tax credit availed in respect of such supply, proportionate to the amount not paid to the supplier, along with interest payable thereon under section 50, while furnishing the return in FORM GSTR-3B for the tax period immediately following the period of one hundred and eighty days from the date of the issue of the invoice

Two provisos deem amounts to have been paid:

• the value of supplies made without consideration under Schedule I, such as supplies between distinct persons or to related persons in the course of business; and
• amounts added to value under section 15(2)(b), that is, amounts the supplier was liable to pay but which the recipient incurred and which were not included in the price.

Sub-rule (2) allows the credit to be re-availed when the recipient “subsequently makes the payment of the amount towards the value of such supply along with tax payable thereon to the supplier”. Sub-rule (4) provides that the time limit in section 16(4) “shall not apply to a claim for re-availing of any credit, in accordance with the provisions of the Act or the provisions of this Chapter, that had been reversed earlier”.

Invoices dated before 1 October 2022 were governed by the rule as it then stood. Disputes about those years turn on the earlier text, which this guide does not cover.

What the rule reaches, and what it does not

• Each invoice separately. The 180 days run from “the date of the issue of the invoice”, not from receipt of the goods or the date the credit was taken.
• Only credit availed. A recipient that never took the credit has nothing to reverse.
• Not reverse charge. Supplies on which the recipient pays tax under reverse charge are excluded by both the proviso and the rule.
• Value and tax together. The payment that counts is “the amount towards the value of such supply … along with the tax payable thereon”. Payment of the tax alone does not satisfy it.
• Part-payment. Since the 2022 amendments, the reversal is proportionate to the amount unpaid. Before them, the rule required the whole credit to be paid back.

What to have ready

Item	Where it comes from
Purchase register showing invoice number and date, value, tax by head, and the period in which credit was taken	Books
Payments made against each invoice, including part-payments, and their dates	Books and bank statements
An ageing of unpaid supplier invoices as at the 180th day	Books
Credit notes received against the invoices, and their status in the Invoice Management System	Portal (IMS and GSTR-2B)
Rule 37 reversals made earlier and not yet reclaimed	Books; the portal’s Electronic Credit Reversal and Re-claimed Statement
Electronic credit ledger balances from the date the credit was taken, for the interest calculation	Portal
GSTR-3B for the period in which the reversal falls	Portal

Counting the 180 days, and the return that carries the reversal

Under section 9 of the General Clauses Act, 1897, a period stated to run “from” a day excludes that day. For an invoice issued on 10 May 2026, the first of the 180 days is 11 May and the last is 6 November 2026.

The rule places the reversal in “the return in FORM GSTR-3B for the tax period immediately following the period of one hundred and eighty days”. The days immediately following 6 November fall in the November 2026 tax period, so on the words of the rule it is the November return that carries the reversal. A monthly filer files that return by 20 December 2026. A filer under the quarterly scheme reports it in the return for October to December 2026, due on 22 or 24 January 2027, depending on the State (rule 61). The rule does not prevent an earlier reversal.

The forms and rows

GSTR-3B, table 4(B)(2). CBIC’s Circular No. 170/02/2022-GST of 6 July 2022 classes a rule 37 reversal as one “not permanent in nature” that “can be reclaimed in future subject to fulfilment of specific conditions”. It is reported in table 4(B)(2) (“Others”), not in 4(B)(1), which is for permanent reversals. The row-by-row treatment of table 4 is in Reporting Credit in GSTR-3B Table 4.

GSTR-3B, table 5.1. Interest is entered in table 5.1 (“Interest and Late fee”) of the same return. Where the amount is paid outside a return, FORM GST DRC-03 is available for a payment made “on his own ascertainment” under rule 142(2).

The reclaim: tables 4(A)(5) and 4(D)(1). The circular directs that credit reversed in 4(B)(2) “may be reclaimed in Table 4(A)(5) on fulfilment of necessary conditions” and “shall also be shown in Table 4(D)(1)”. The first entry adds the credit back. The second records it as a reclaim.

The Electronic Credit Reversal and Re-claimed Statement. The GST Network’s portal keeps a running statement of credit reversed in 4(B)(2) and reclaimed in 4(D)(1). Its advisory of 29 December 2025 states that a reclaim in 4(D)(1) must not exceed the statement’s closing balance plus the current period’s 4(B)(2) reversal, and that this check, so far a warning, would “shortly” become a block. A rule 37 reversal entered in 4(B)(1) by mistake does not reach the statement, and its later reclaim fails the check.

GSTR-9. FORM GSTR-9, as amended by Notification No. 13/2025-Central Tax from 22 September 2025, carries rule 37 in three places:

• Table 7A (“As per Rule 37”) for reversals made in the year’s returns.
• Table 12 for credit of the year reversed in the next year’s returns filed up to 30 November. From 2024-25 its instructions state that such a reversal “will not be part of Table 7”.
• Table 6H for a reclaim of credit reversed under rule 37 in an earlier year. The instructions to table 6A1 keep that reclaim out of 6A1. Where credit is availed, reversed and reclaimed within the same year, the first availment is shown in 6B, the reversal in table 7 and the reclaim in 6H.

Portal steps

The GSTR-3B user manual describes the “Eligible ITC” tile, in which the filer enters the reversal in 4(B)(2) or, for a reclaim, in 4(A)(5) and 4(D)(1). Interest is entered in the “Interest and Late fee” tile. The portal’s ledger manual places the reclaim statement under Services > Ledgers > Electronic Credit Reversal and Re-claimed Statement, where reversals and reclaims for each return period can be viewed. The return is filed in the ordinary way. The full sequence is in Filing GSTR-3B and Paying the Tax.

Who signs

GSTR-3B is signed by the authorised signatory. Under rule 26(1) a company “shall furnish the documents or application verified through digital signature certificate”. Other registered persons may also verify through an electronic verification code.

Interest

Both the proviso and the rule require the amount to be paid or reversed “along with interest payable thereon under section 50”. Neither says from which date interest runs.

Section 50(3) charges interest where credit “has been wrongly availed and utilised”. The rate is 18 per cent a year. Section 116 and the Sixth Schedule of the Finance Act, 2022 amended Notification No. 13/2017-Central Tax to fix it with effect from 1 July 2017. Rule 88B(3) computes the interest “for the period starting from the date of utilisation of such wrongly availed input tax credit till the date of reversal of such credit or payment of tax in respect of such amount”. Its Explanation defines utilisation:

input tax credit wrongly availed shall be construed to have been utilised, when the balance in the electronic credit ledger falls below the amount of input tax credit wrongly availed, and the extent of such utilisation of input tax credit shall be the amount by which the balance in the electronic credit ledger falls below the amount of input tax credit wrongly availed.

Where the fall is caused by payment of tax through a return, the date of utilisation is the return’s due date or its filing date, whichever is earlier.

For integrated tax credit, CBIC’s Circular No. 192/04/2023-GST of 17 July 2023 measures the balance across the integrated, central and State tax heads taken together, because credit under any of them can pay integrated tax. Compensation cess credit is left out.

Credit that was properly taken when the invoice arrived becomes reversible only when the 180 days end. Whether it is “wrongly availed” from the start or only from then is not settled by the rule or by any circular, and the choice changes the interest. If the ledger balance never fell below the amount to be reversed, there was no utilisation, and on the section 50(3) reading no interest arises.

A worked illustration

The figures below are an illustration only.

• A supplier issues an invoice on 10 May 2026 for Rs 10,00,000 plus integrated tax of Rs 1,80,000, a total of Rs 11,80,000.
• The recipient takes the Rs 1,80,000 credit in its May 2026 GSTR-3B, filed on its due date, 20 June 2026. After the return’s payment, its credit ledger (all heads together, under Circular No. 192/04/2023-GST) stands at Rs 30,000. It stays at or below that level.
• By 6 November 2026 the recipient has paid Rs 5,90,000. The unpaid share is Rs 5,90,000 ÷ Rs 11,80,000, or 50 per cent.
• Reversal. Rs 90,000 of integrated tax is reversed in table 4(B)(2) of the November 2026 GSTR-3B, filed on 20 December 2026.
• Interest, utilisation reading. The ledger fell below the Rs 90,000 to be reversed by Rs 60,000 on 20 June 2026. Interest under rule 88B(3) from 20 June to 20 December 2026, 183 days, is Rs 60,000 × 18 per cent × 183 ÷ 365 = Rs 5,415.
• Interest, 181st-day reading. If the credit is treated as wrongly availed only from 7 November 2026, the period to 20 December is 43 days, and the interest is Rs 60,000 × 18 per cent × 43 ÷ 365 = Rs 1,272.
• Reclaim. The recipient pays the balance of Rs 5,90,000 on 15 February 2027. It re-avails Rs 90,000 in its February 2027 GSTR-3B, in table 4(A)(5), and records it in table 4(D)(1). Rule 37(4) disapplies the section 16(4) time limit.
• GSTR-9 for 2026-27. The first availment of Rs 1,80,000 is in table 6B, the reversal of Rs 90,000 in table 7A, and the reclaim of Rs 90,000 in table 6H.

Common points of dispute

• Which date interest runs from. The two readings are illustrated above. Neither the Act, the rules nor a circular resolves the point.
• What counts as payment. The rule speaks of failing “to pay to the supplier”. Neither the rule nor any circular found addresses settlement by set-off against amounts the supplier owes the recipient, payment to a third party on the supplier’s instruction, or book adjustments. Where the department questions a settlement, the recipient’s ledgers, agreements and bank records are the evidence examined.
• Amounts withheld under the contract. Retention money, amounts held back over a quality dispute, and income-tax deducted at source and deposited on the supplier’s account are not mentioned in the rule.
• Credit notes. Where the supplier issues a credit note reducing the value and tax, the recipient’s credit is reduced through the credit note under section 34, and the amount still unpaid is measured against the reduced invoice. Since the Invoice Management System, credit notes reach the recipient’s GSTR-2B according to its IMS action.
• Reclaiming after part-payment. Sub-rule (2) allows re-availment on payment of “the amount towards the value of such supply along with tax payable thereon”. It does not say whether a payment of part of the balance after a reversal allows a proportionate reclaim.
• Lump-sum payments. The rule does not say how a payment on account, not tied to particular invoices, is to be allocated among them. The recipient’s own allocation in its books is what an officer usually examines.

Consequences of not reversing

Credit retained after the 180 days without the reversal is credit to which the recipient was not entitled. It is recovered with interest through a demand under section 73 or 74 for periods up to 2023-24, or under section 74A from 2024-25, with the penalty those sections provide. The point may be raised in scrutiny of returns (Answering a Scrutiny Notice on Credit) or in audit. The notice process is described in GST Notices.

What can still be put right

• A reversal missed. It can be made in table 4(B)(2) of a later GSTR-3B, with interest, or the amount paid through DRC-03.
• A reversal made in the wrong row. A reversal entered in 4(B)(1) is not in the reclaim statement. The portal’s windows for declaring an opening balance in that statement closed in 2024, and no other route for correcting it has been announced.
• A reclaim missed. Because rule 37(4) disapplies section 16(4), a reclaim is not lost by the passage of time. It is made in 4(A)(5) and 4(D)(1) of any later return.

The general routes are in Correcting Mistakes in Returns and Late Returns.

The procedure in order

1. Each month, age unpaid supplier invoices from their date of issue, excluding reverse charge supplies and supplies deemed paid.
2. For each invoice still unpaid at the 180th day, compute the credit attributable to the unpaid share, by tax head.
3. Reverse it in table 4(B)(2) of the GSTR-3B for the tax period immediately after the 180 days.
4. Compute interest under section 50 and rule 88B(3), testing the credit ledger balance, and enter it in table 5.1 or pay it through DRC-03.
5. When the supplier is paid, re-avail the credit in table 4(A)(5) and record it in table 4(D)(1), within the reclaim statement’s balance.
6. Carry the reversal to table 7A of GSTR-9, or to table 12 if it falls in the next year’s returns, and the reclaim to table 6H.

The next guide covers rule 37A, which requires credit to be reversed for a different reason: the supplier has not filed its own GSTR-3B.