My supplier didn't pay GST: do I lose my input tax credit?

Your purchase invoice shows GST. You paid the supplier. Your GSTR-2B does not show the credit, or the department asks why you claimed credit on tax the supplier never deposited. This is the supplier-default problem. Section 16 of the Central Goods and Services Tax Act, 2017 (CGST Act) and rules 36(4), 37 and 37A of the CGST Rules, 2017 answer it. Everything below is the law as it stands now, not the position before the 2021 and 2022 amendments.

The starting point: entitlement, then conditions

Credit is an entitlement for a registered person on supplies used or intended to be used in the course or furtherance of business:

"Every registered person shall, subject to such conditions and restrictions as may be prescribed and in the manner specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person." (s.16(1), CGST Act 2017)

Section 16(2) then says no registered person is entitled to credit "unless" the conditions that follow are met. Older write-ups list four conditions. The current section has more, because clauses (aa) and (ba) were inserted.

The conditions in section 16(2), as they read now

• Invoice or debit note (clause (a)). You hold a tax invoice or debit note issued by a supplier registered under the Act, or such other tax paying documents as may be prescribed.
• Supplier has reported it, and it has been communicated to you (clause (aa)). "the details of the invoice or debit note referred to in clause (a) has been furnished by the supplier in the statement of outward supplies and such details have been communicated to the recipient of such invoice or debit note in the manner specified under section 37". In practice this is the GSTR-1 to GSTR-2B chain: no supplier reporting, no communication to you, no credit on the face of the statute.
• Receipt (clause (b)). You have received the goods or services or both. The Explanation deems receipt where goods are delivered by the supplier to another person on your direction, whether acting as agent or otherwise, before or during movement of goods, and where services are provided by the supplier to any person on your direction and on your account.
• Credit not restricted (clause (ba)). The details of input tax credit in respect of the supply communicated to you under section 38 "has not been restricted".
• Tax actually paid (clause (c)). Subject to section 41, "the tax charged in respect of such supply has been actually paid to the Government, either in cash or through utilisation of input tax credit admissible in respect of the said supply".
• Return filed (clause (d)). You have furnished the return under section 39.

Clauses (aa) and (c) together are the supplier-default tripwire. Your invoice, payment and receipt are not enough if the supplier did not report the invoice or the tax never reached the Government.

Rule 36(4): what the rules add for invoices under section 37(1)

Rule 36(4) turns the section 16(2)(aa) condition into a return-time test. No credit may be availed in respect of invoices or debit notes whose details are required to be furnished under section 37(1) unless:

• the supplier has furnished the details in the statement of outward supplies in FORM GSTR-1 (as amended in FORM GSTR-1A, if any) or through the invoice furnishing facility; and
• the details of input tax credit in respect of those invoices or debit notes have been communicated to you in FORM GSTR-2B under sub-rule (7) of rule 60. (r.36(4), CGST Rules 2017)

So the working test before you claim is: is the invoice in your GSTR-2B as eligible credit. If it is not there, rule 36(4) stops you from availing it, whatever your payment record shows.

Section 41: where the supplier has not paid the tax

Section 16(2)(c) is expressly "subject to the provisions of section 41". Section 41 now reads:

"(1) Every registered person shall, subject to such conditions and restrictions as may be prescribed, be entitled to avail the credit of eligible input tax, as self-assessed, in his return and such amount shall be credited to his electronic credit ledger."

"(2) The credit of input tax availed by a registered person under sub-section (1) in respect of such supplies of goods or services or both, the tax payable whereon has not been paid by the supplier, shall be reversed along with applicable interest, by the said person in such manner as may be prescribed." (s.41(1) and (2), CGST Act 2017)

The proviso adds that if the supplier later pays the tax, "the said registered person may re-avail the amount of credit reversed by him in such manner as may be prescribed."

The "manner prescribed" for the non-filing case is rule 37A.

Rule 37A: supplier has not filed GSTR-3B

Rule 37A applies where you availed credit in your GSTR-3B for an invoice or debit note whose details the supplier furnished in GSTR-1 (or GSTR-1A, or the invoice furnishing facility), but the supplier has not furnished its own GSTR-3B for the corresponding tax period "till the 30th day of September following the end of financial year in which the input tax credit in respect of such invoice or debit note has been availed".

In that case:

• You must reverse the credit while furnishing your GSTR-3B on or before the 30th day of November following the end of that financial year.
• If you do not reverse it by then, the amount "shall be payable by the said person along with interest thereon under section 50".
• If the supplier later furnishes the GSTR-3B for that period, you may re-avail the credit in your GSTR-3B for a later tax period. (r.37A, CGST Rules 2017)

Worked timeline for an invoice whose credit you took in July 2025, financial year 2025-26: the supplier's GSTR-3B for the matching period is still unfiled on 30 September 2026; you reverse in your return filed on or before 30 November 2026; if the supplier files afterwards, you re-avail in a later return.

Credit you did not pay for: the 180-day rule

This is separate from supplier default but compounds it. The second proviso to section 16(2) says that where a recipient fails to pay the supplier, other than for supplies on which tax is payable on reverse charge, "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".

Rule 37(1) gives the mechanism. You pay or reverse an amount equal to the credit availed, proportionate to the amount not paid to the supplier, along with interest under section 50, while furnishing GSTR-3B for the tax period immediately following the period of one hundred and eighty days from the date of issue of the invoice. Rule 37(1) also treats the value of supplies made without consideration as specified in Schedule I, and amounts added under section 15(2)(b), as paid for this purpose.

The third proviso to section 16(2) restores credit when you pay: "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." Rule 37(2) says the same: if you later pay the supplier the value and the tax, you may re-avail the credit. (s.16(2) provisos; r.37(1) and (2))

Lots or instalments

The first proviso to section 16(2): "where the goods against an invoice are received in lots or instalments, the registered person shall be entitled to take credit upon receipt of the last lot or instalment". Do not claim proportionately on part-delivery against one invoice.

Depreciation or credit: pick one

"Where the registered person has claimed depreciation on the tax component of the cost of capital goods and plant and machinery under the provisions of the Income tax Act, 1961 (43 of 1961), the input tax credit on the said tax component shall not be allowed." (s.16(3), CGST Act 2017)

If the GST component went into your depreciation base, it cannot also sit in your electronic credit ledger.

The 30 November cut-off

Section 16(4) now reads: "A registered person shall not be entitled to take input tax credit in respect of any invoice or debit note for supply of goods or services or both after the thirtieth day of November following the end of financial year to which such invoice or debit note pertains or furnishing of the relevant annual return, whichever is earlier." (s.16(4), CGST Act 2017)

The earlier of those two dates controls. A supplier who regularises late can still leave you time-barred on a fresh claim for an old invoice.

Rule 37(4) states that "the time limit specified in sub-section (4) of section 16 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." So credit you reversed under section 41 and rule 37A, or under rule 37, can be re-availed after the 30 November date once the supplier has paid or you have paid the supplier. (r.37(4), CGST Rules 2017)

Where registration was cancelled and later revoked, section 16(6) gives a separate window for returns covering the cancelled period. That is outside this article.

What to do now

• Next step: open the invoice in your GSTR-2B. If it is not there as eligible credit, do not avail it (r.36(4) CGST Rules; s.16(2)(aa)). Ask the supplier to report it in GSTR-1.
• Deadline: if credit is already availed and the supplier has not filed its GSTR-3B by 30 September after the financial year of availment, reverse by 30 November in your GSTR-3B (r.37A). For unpaid supplier invoices, count 180 days from invoice date (s.16(2), second proviso; r.37(1)).
• Consequence of missing it: the amount becomes payable with interest under section 50 (r.37A, first proviso; s.16(2), second proviso). A fresh claim after 30 November following the financial year is barred (s.16(4)).
• Getting it back: re-avail once the supplier files (r.37A, second proviso) or once you pay the supplier (s.16(2), third proviso; r.37(2)); the s.16(4) time limit does not apply to re-availing reversed credit (r.37(4)).

Have a CA review your facts before you act or file.

What this article does not cover

Interest rates under section 50, late fees, portal click-paths, and the position for particular financial years or disputed invoices are not set out here. Check the current notifications for your tax period before reversing or re-availing.

FAQ

Must I hold anything specific before claiming credit on a purchase?
Yes. A tax invoice or debit note from a registered supplier (or prescribed document), the supplier's reporting of the invoice communicated to you under section 37, receipt of the goods or services, credit not restricted under section 38, tax actually paid to the Government, and your section 39 return filed. (s.16(2)(a), (aa), (b), (ba), (c), (d))

My supplier never paid the tax. Can I keep the credit?
Not on the statute's terms. Section 16(2)(c) requires that the tax "has been actually paid to the Government", subject to section 41, and section 41(2) requires reversal with applicable interest where the supplier has not paid. Rule 37A fixes the timing where the supplier has not filed its GSTR-3B.

I received goods in instalments against one invoice. When can I claim?
On receipt of the last lot or instalment. (s.16(2), first proviso)

I haven't paid the supplier after six months. What happens?
An amount equal to the credit availed is paid by you along with interest under section 50, and paying the supplier later entitles you to avail the credit again. (s.16(2), second and third provisos; r.37)

Can I claim credit next year on this year's bill?
Only until the earlier of the thirtieth day of November following the end of the financial year to which the invoice pertains, or the furnishing of the relevant annual return. (s.16(4))

I claimed depreciation including GST on machinery. Can I also take ITC?
Not on that tax component. (s.16(3))

General information based on the CGST Act, 2017 and CGST Rules, 2017 as consolidated on 2 November 2026. Not advice on a specific invoice.

Need help with this?

Our team handles the paperwork. You focus on your business.