Rule 37 of CGST Rules: ITC reversal for non-payment within 180 days
Rule 37 is the specific procedural rule that gives effect to the 180-day payment condition attached to Section 16(2) of the CGST Act. This page works through the rule as it currently stands, including the significant changes made in October 2022, the exact interest computation, and how the reversal and later reclaim are reported.
For a general overview of when payment issues arise and how to manage them operationally, see ITC Reversal for Non-Payment to Supplier. For the full list of ITC reversal triggers, see ITC Reversal Under GST.
The statutory basis
The second proviso to Section 16(2) of the CGST Act states that where a recipient fails to pay a supplier the value of a supply, along with the tax payable on it, within one hundred and eighty days from the date of the supplier's invoice, an amount equal to the ITC availed has to be added to the recipient's output tax liability, along with interest, in the manner prescribed. Rule 37 is the rule that prescribes exactly how this works.
What changed in October 2022
Rule 37 was substantially amended with effect from 1 October 2022, and the current mechanics differ from the earlier version in ways that matter for how a reversal is actually calculated.
Before the amendment, the rule referred to furnishing reversal details through a separate form that was never made operational on the portal, and the compliance mechanism around it was widely considered unclear. The amended rule now works directly through GSTR-3B, requiring the reversal amount to be reported in the return for the tax period immediately following the month in which the 180-day period lapses.
The amendment also clarified that reversal applies only to the unpaid portion of an invoice, not automatically to the full ITC claimed on it. If part of the invoice has been paid within 180 days, only the ITC proportionate to the unpaid balance needs to be reversed.
How the reversal amount is calculated
The reversal amount is worked out proportionately to what remains unpaid at the 180-day mark:
Reversal Amount = ITC Claimed × (Unpaid Value ÷ Total Invoice Value)
If the full invoice, including the tax component, remains unpaid at day 180, the entire ITC claimed on that invoice is reversed. If part payment has been made, only the ITC attributable to the unpaid portion is reversed, and the ITC on the paid portion is retained without any reversal.
Interest calculation under Rule 88B
The interest payable on a Rule 37 reversal is computed under Rule 88B, at 18% per year under Section 50(1), applied from the date the ITC was originally claimed until the date the reversal is made.
Interest = Reversed ITC × 18% × (Number of Days ÷ 365)
Worked example: A buyer claims ₹9,000 as ITC on an invoice dated 1 July, for goods worth ₹50,000. By 31 December (day 180), the invoice remains fully unpaid. The full ₹9,000 has to be reversed in the GSTR-3B for the following period. If the buyer eventually pays on day 181, interest is computed as:
₹9,000 × 18% × (180 ÷ 365) = ₹798.90
Worked example with partial payment: A buyer receives goods worth ₹5,80,000 plus ₹1,08,000 GST (total invoice value ₹6,88,000) and claims the full ₹1,08,000 as ITC. By the 180-day mark, ₹2,16,000 of the invoice remains unpaid, while ₹4,72,000 has been paid. The ITC attributable to the unpaid portion is reversed:
Reversal = ₹1,08,000 × (₹2,16,000 ÷ ₹6,88,000) ≈ ₹33,900
(figures are illustrative and should be computed to the exact proportion for actual filings)
Interest is then charged on this reversed amount, from the date it was originally claimed to the date it is reversed, at 18% per year. If the buyer later pays the remaining ₹2,16,000, the reversed ITC can be reclaimed in that period's return.
When no interest applies
Rule 88B includes an important relief. If a taxpayer has a sufficient ITC balance in the electronic credit ledger throughout the period from the date the credit was claimed to the date it is reversed, no interest is payable on that reversal, since the credit was never actually used to discharge an output tax liability. Sufficiency of balance is assessed based on the ledger position from the date the ITC was originally claimed, not just at the point reversal is made.
Where reversal is reported
Rule 37 reversals are reported in Table 4(B)(2) of GSTR-3B, for the tax period following the one in which the 180-day period lapses. This distinguishes it from permanent reversals of blocked credit, which are reported separately.
Reclaiming reversed ITC
Once payment, including the tax component, is actually made to the supplier, the previously reversed ITC can be reclaimed in the GSTR-3B for the period in which the payment is made. There is no fixed time limit on when this reclaim has to happen, and the standard Section 16(4) time bar for claiming fresh ITC does not apply to re-availing credit that was reversed under Rule 37. Interest already paid on the earlier reversal is not refunded, even after the credit is reclaimed.
What does not fall under Rule 37
Two situations are specifically outside this rule. Supplies taxable under reverse charge are excluded, since the recipient pays the tax directly to the government rather than to the supplier, so there is no supplier payment to track. Deemed supplies made without any consideration being payable, such as certain transactions between related or distinct persons, are also outside the scope of this rule, since the 180-day condition is tied to the value of supply actually being payable.
Rule 37 versus Rule 37A
Rule 37 and Rule 37A are often confused because both result in ITC reversal connected to a supplier relationship, but they are triggered by different failures. Rule 37 is about the buyer's own failure to pay the supplier within 180 days. Rule 37A is about the supplier's failure to pay tax to the government after reporting the invoice, regardless of whether the buyer has already paid the supplier in full. Rule 37A is covered in detail on GSTR-2B and Input Tax Credit.
Frequently asked questions
From what date is the 180-day period counted under Rule 37?
From the date of the supplier's invoice, not from the date the goods or services were received or the date ITC was claimed.
Does Rule 37 require reversal of the entire ITC on an invoice if only part payment is outstanding?
No. Since the October 2022 amendment, reversal applies only to the ITC proportionate to the unpaid value of the invoice.
What interest rate applies to a Rule 37 reversal?
18% per year under Section 50(1), computed under Rule 88B from the date the ITC was claimed to the date it is reversed, unless a sufficient credit balance was maintained throughout that period.
Can ITC reversed under Rule 37 be reclaimed?
Yes, once payment is made to the supplier, in the GSTR-3B for the period in which the payment occurs, without being subject to the standard time limit for claiming ITC.
Does Rule 37 apply to reverse charge supplies?
No. Reverse charge supplies are specifically excluded, since the recipient pays tax directly to the government rather than to the supplier.