180-Day Vendor Payment Rule: ITC Reversal and Reclaim Checklist

The 180-day rule is measured invoice by invoice. A healthy total vendor balance does not prove that a specific invoice and tax were paid within time.

What the business should understand

• The second proviso to section 16(2) and rule 37 require reversal where the recipient fails to pay the supplier the value plus tax within 180 days, subject to the statutory exceptions.
• The current rule requires proportionate reversal for the unpaid amount and interest under section 50.
• Credit can be re-availed after payment to the supplier, subject to the governing law.
• Supplies liable to reverse charge and specified deemed-paid situations require separate treatment.
• Commercial retention, quality disputes, netting and related-party accounting should be tested against actual payment and the statutory rule.

For the connected rule, example or next step, see MSME Delayed Payment: The 45-Day Rule and Evidence Checklist.

The five-point review

Practical example

How to apply the framework

Build invoice-level ageing from accounts payable, not vendor-level ageing. Match payments to invoices using a documented rule.

Separate bona fide credit notes from unpaid invoices. Where invoices are disputed, decide whether to reverse pending resolution instead of allowing silent interest exposure.

Decision workflow

Define the legal question before changing the return

Identify the GSTIN, tax period, transaction, document and exact statutory question. Review invoice, payment and balance together. Freeze the source data so that later ERP edits do not destroy the evidence used for the decision.

Reconcile from commercial reality to portal data

Start with the contract or commercial event. Move through the invoice, receipt or movement evidence, e-invoice or e-way bill, accounting entry, return and electronic ledger. Classify each difference as timing, error, ineligible amount, statutory exception, disputed position or completed correction. Avoid a plug entry whose only purpose is to make two reports equal.

Record the conclusion and future control

Prepare a concise position note with facts, authority, amount, alternative view and approval. Preserve the filing acknowledgement and update the responsible master data, vendor rule, invoice workflow or monthly checklist. The objective is not only to survive one review but to prevent the same issue in the next period.

Action checklist

• Run 150-day and 175-day alerts.
• Map payments invoice-wise.
• Calculate proportionate reversal.
• Pay applicable interest.
• Re-avail after payment.
• Reconcile AP, ITC register and GSTR-3B.

Evidence to keep

• Vendor invoice
• Payment allocation
• AP ageing
• Rule 37 reversal working
• Reclaim and supplier payment proof

Warning signs

Finin2min takeaway