ITC Reversal under GST: Rules 37, 42 & 43
Definition
ITC reversal means paying back input tax credit already claimed, or not claiming it, when the conditions for credit are not met — for example the supplier is not paid within 180 days, or inputs are used for exempt supplies.
| Term | ITC reversal under GST |
|---|---|
| In Hindi | इनपुट टैक्स क्रेडिट रिवर्सल |
| Area | GST & tax |
| Search phrase | ITC reversal |
| Try it | Blocked credit under GST |
इनपुट टैक्स क्रेडिट रिवर्सल — हिंदी में अर्थ
ITC रिवर्सल का अर्थ है पहले लिया गया इनपुट टैक्स क्रेडिट वापस करना या न लेना, जब क्रेडिट की शर्तें पूरी न हों — जैसे सप्लायर को 180 दिन में भुगतान न हो, या माल छूट वाली आपूर्ति में लगे।
Main reasons for reversal
Rule 37 — the supplier's invoice (value plus tax) is not paid within 180 days of the invoice date: the ITC is reversed, and can be re-claimed once payment is made. Rule 37A — the supplier has not filed GSTR-3B for that period by 30 September of the following year. Rules 42 and 43 — common inputs, input services or capital goods used partly for exempt or non-business purposes: the proportion for exempt use is reversed.
Also: blocked credits under section 17(5); goods lost, stolen, destroyed, written off or given as free samples; and credit notes received from the supplier, which reduce the ITC earlier claimed.
Reporting in GSTR-3B
Reversals go in Table 4(B): 4(B)(1) for permanent reversals (Rules 38, 42, 43 and section 17(5)), and 4(B)(2) for others that may be reclaimed later, such as Rule 37. A re-claimed amount is shown in Table 4(A)(5) and also in Table 4(D)(1). Reversing late can attract interest, so the 180-day check is worth running every month.
Example
Common ITC on factory power and rent is ₹1,00,000 for the month. Total turnover is ₹1 crore, of which ₹20 lakh is exempt. Under Rule 42, 20% — ₹20,000 — is reversed and ₹80,000 retained.
Related tools and guides
Frequently asked questions
What is the 180-day rule for ITC?
If you do not pay the supplier within 180 days from the invoice date, the ITC on that invoice must be reversed; it can be claimed again after payment.
Where is ITC reversal shown in GSTR-3B?
In Table 4(B) — 4(B)(1) for permanent reversals and 4(B)(2) for reversals that can be reclaimed.
What do Rules 42 and 43 cover?
Rule 42 covers common inputs and input services; Rule 43 covers common capital goods, used for both taxable and exempt supplies.
Does a credit note from the supplier reduce my ITC?
Yes. The tax on the credit note must be reduced from your ITC.
Related terms
- Bill of supplyA bill of supply is the GST document issued instead of a tax invoice when no tax can be charged — by a composition taxpayer, or by a registered person supplying exempt goods or services. It shows no GST amount.
- Blocked credit under GST (Section 17(5))Blocked credit is GST paid on purchases that cannot be claimed as input tax credit even when used in business, because section 17(5) of the CGST Act specifically disallows it — such as food, most passenger cars and construction of buildings.
- Composition scheme (GST)The composition scheme is an optional, simpler GST scheme for small taxpayers: they pay tax at a low fixed percentage of turnover, file quarterly, but cannot charge GST on their invoices or claim input tax credit.
- GST registration limitA business must register under GST once its aggregate turnover in a financial year crosses ₹40 lakh if it supplies only goods, or ₹20 lakh if it supplies services — with lower limits in some special-category states — or earlier if it falls in a compulsory registration category.
- GSTR-1 vs GSTR-3BGSTR-1 is the return of outward supplies — invoice-wise details of sales. GSTR-3B is the summary return in which tax is actually paid and input tax credit claimed. Both are filed by regular GST taxpayers.
- Nil-rated, exempt, zero-rated and non-GST supplyNil-rated supplies carry a 0% GST rate; exempt supplies are wholly exempted from GST; zero-rated supplies are exports and supplies to SEZs, where ITC is still allowed; non-GST supplies are items outside GST altogether, such as petrol and alcohol for human consumption.