Key answer: calculate from the affected invoice and the credit actually availed
For an otherwise eligible forward-charge supply within Rule 37, identify the invoice value including tax, the supported amount paid and the unpaid portion after the statutory payment period. The principal credit reversal is proportionate to the unpaid amount. Do not apply one supplier-level ageing percentage indiscriminately across invoices with different tax rates, eligibility or payment allocations.
This article focuses on the computational working, rather than a general overview of Rule 37. Sources were checked on 22 October 2026. The stated GST rates in examples are assumptions for the invoices, not advice on the classification or rate applicable to a particular product. Each example computes the credit principal only; interest is a separate assessment under Section 50 and the applicable rules. No example assumes interest is automatically nil.
Read the amended rule, not an unamended 2022 summary
The second proviso to Section 16(2) and Rule 37 address the payment condition. Notification 26/2022-Central Tax, dated 26 December 2022 expressly inserted the part-payment and proportionate-reversal wording with effect from 1 October 2022. The GST Council's published explanation confirms the gross consideration, proportionate reversal and subsequent-payment reclaim principles. Do not treat a Council recommendation alone as an enacted amendment; use the notification and applicable rule.
The statutory test is tied to the 180-day period from the invoice date, not a commercial due date agreed with the supplier. Rule 37 excludes reverse-charge supplies from this payment-based mechanism. Its provisos deem the value of Schedule I supplies without consideration, and the value added under Section 15(2)(b), paid for this test. Identify these specific cases rather than inventing a general related-party or retention-money exemption. Establish scope before calculation. A dispute with the vendor does not by itself create an extension of the statutory payment condition.
A useful invoice-level calculation
Working reversal = ITC actually availed for the affected supply × unpaid gross consideration ÷ gross consideration for that supply. This proportional working assumes payments are validly allocated against the stated supply and there is no special settlement, credit-note or eligibility issue changing the facts. Split the calculation by tax head. Cap it at the credit subject to this test and prevent a second reversal of credit already adjusted for the same obligation.
Use invoices and the payment-allocation register, not just a supplier's net closing balance. A recent payment may settle an old invoice or an identified advance. Retain evidence for the allocation and investigate unallocated receipts, deductions, retention money and disputed credit notes. A ledger write-off or unilateral accounting netting is not automatically evidence that the supplier has been paid.
Keep reversal and later re-availment connected
Maintain the original invoice, eligible credit availed, reversal period and amount, later supported payment, attributable reclaim and remaining reversed balance. Subsequent payment supports the corresponding re-availment under the rule, but does not justify reclaiming credit that was never eligible or reversing the earlier interest assessment. Rule 37(4) excludes re-availment of earlier reversed credit from the Section 16(4) time limit; it does not reopen an originally ineligible claim. Keep other reversal rules, including supplier non-filing issues, separate.
Rule 37(1) requires payment or reversal with the applicable Section 50 interest while furnishing GSTR-3B for the tax period immediately following expiry of 180 days from the invoice date. Identify that period from the actual invoice and filing frequency. Under CBIC Circular 170/02/2022-GST, a temporary Rule 37 reversal is reported in Table 4(B)(2); eligible subsequent reclaim is reported in 4(A)(5) and also disclosed in 4(D)(1). Reconcile these with current return instructions and the electronic credit reversal/reclaim records. The reporting requirement is not permission to wait until the annual return. Retain working precision and apply the required reporting rounding consistently; the illustrations do not prescribe an independent statutory rounding rule.
Worked illustrations
The following cases use fictional figures and stated assumptions. Amounts are Indian rupees unless a different unit is expressly shown. They illustrate preparation controls and do not represent real client results.
Illustrative example 1: half of the gross invoice remains unpaid
Invoice taxable value is ₹1,00,000 and assumed GST is ₹18,000, making gross consideration ₹1,18,000. Eligible ITC of ₹18,000 has been availed. Supported payment is ₹59,000, leaving ₹59,000 unpaid at the relevant trigger. Principal reversal is ₹18,000 × ₹59,000 ÷ ₹1,18,000 = ₹9,000.
Illustrative example 2: the taxable value is paid but the tax portion remains outstanding
Use the same ₹1,18,000 gross invoice and ₹18,000 credit. Payment is ₹1,00,000 and ₹18,000 remains unpaid. The gross unpaid proportion is ₹18,000 ÷ ₹1,18,000. The working reversal is ₹2,745.762711..., or ₹2,745.76 at two decimal places for illustration. Paying an amount equal to the taxable value does not by itself mean the gross payment condition is fully satisfied.
Illustrative example 3: split the half-payment result by tax head
An intra-State invoice has taxable value ₹1,00,000, CGST ₹9,000 and SGST ₹9,000. Half of the gross ₹1,18,000 is unpaid, with both credits otherwise eligible and availed. Reverse ₹4,500 CGST and ₹4,500 SGST, totalling ₹9,000. Do not place the entire ₹9,000 against only one tax head.
Illustrative example 4: supplier-level averaging fails with different invoice rates
Assume both invoices are within the payment-test population. Invoice A has value ₹1,00,000 plus assumed GST ₹5,000; invoice B has value ₹1,00,000 plus assumed GST ₹18,000. The ₹1,05,000 payment is validly allocated entirely to A, while B remains fully unpaid. The principal reversal is ₹18,000 for B and zero for A. A pooled calculation of ₹23,000 × ₹1,18,000 ÷ ₹2,23,000 gives approximately ₹12,170.40 and is wrong for this allocation.
Illustrative example 5: only part of the invoice tax was eligible and availed
A gross ₹1,18,000 invoice contains tax ₹18,000, but assume only ₹9,000 is otherwise eligible and has actually been availed after a separately supported eligibility assessment. Half the gross consideration remains unpaid. The Rule 37 principal working on that availed credit is ₹9,000 × 50% = ₹4,500. Do not reverse ₹9,000 merely by applying half to the full invoice tax that was not entirely availed.
Illustrative example 6: a later payment supports only the attributable reclaim
In example 1, ₹9,000 was reversed when half of the ₹1,18,000 invoice remained unpaid. A later supported payment of ₹29,500 settles another quarter of the original invoice. The attributable credit is ₹18,000 × ₹29,500 ÷ ₹1,18,000 = ₹4,500. Reclaiming that amount leaves ₹4,500 still reversed against the remaining ₹29,500 unpaid, assuming all other relevant conditions are satisfied.
Ten-step verification table
| Step | Verification | Evidence to retain |
|---|---|---|
| 1 | Identify eligible forward-charge invoices in scope. | Scope and exception assessment. |
| 2 | Retain invoice dates and gross consideration. | Invoice register including tax. |
| 3 | Identify credit actually eligible and availed by tax head. | ITC ledger and eligibility working. |
| 4 | Map supported payments to individual invoices. | Payment allocation and bank/settlement evidence. |
| 5 | Apply the statutory payment-period test. | Invoice-based ageing and trigger record. |
| 6 | Compute the unpaid gross proportion. | Invoice-level amount and ratio. |
| 7 | Calculate tax-head-wise principal reversal. | Recomputed credit working without duplicate reversal. |
| 8 | Assess applicable interest separately. | Section 50/rule analysis and relevant facts. |
| 9 | Reconcile reporting and subsequent-payment reclaim. | Return entries linked to original reversal. |
| 10 | Track the remaining reversed balance to closure. | Invoice history, payments and bounded reclaim record. |
Sixteen practitioner FAQs
1. Is reversal based on the full tax charged or the ITC availed?
Start with the credit actually availed for the affected supply and assess its eligibility. The worked formula does not reverse credit never taken.
2. Should unpaid consideration include tax?
The payment condition concerns the value along with tax. The illustrations use the gross consideration consistently in both numerator and denominator.
3. Does paying the taxable value alone satisfy the condition?
Not automatically. Establish the amount still unpaid against gross consideration; example 2 shows the proportionate calculation.
4. Can all supplier invoices use one unpaid percentage?
Only if a supported calculation establishes it is appropriate. Different rates, dates, eligibility and payment allocations can make pooling incorrect.
5. Is the supplier's closing balance enough evidence?
No. Reconcile invoice allocations, advances, recent invoices and other ledger items before identifying the payment-test population.
6. Can a payment be allocated wherever it minimises reversal?
Use the actual supported commercial/legal allocation. Do not manufacture an allocation merely to produce a desired tax result.
7. Does the invoice's agreed credit period replace 180 days?
No. Assess the statutory invoice-based period separately from the commercial payment term.
8. Does Rule 37 apply identically to reverse-charge supplies?
The stated payment-based rule excludes supplies on which tax is payable under reverse charge. Other ITC conditions still require their own assessment.
9. What about supplies deemed paid under the rule?
Identify and document the specified exception before applying the ordinary cash-payment calculation. Do not force every transaction into the same formula.
10. Is a vendor dispute an automatic exemption?
No. Establish the governing rule and actual settlement facts; a commercial dispute alone does not establish an extension.
11. Does a ledger write-off prove payment?
No. A unilateral accounting entry is not automatically evidence of payment or a legally effective settlement of the supplier's consideration.
12. Can a later part-payment support a part-reclaim?
Link the supported payment to the relevant supply and the credit previously reversed. Reclaim only the attributable amount supported by the conditions.
13. Can the total reclaim exceed the original eligible reversed credit?
No. Retain a running reversed-credit balance and prevent duplicated re-availment.
14. Are the examples interest-inclusive?
No. They calculate credit principal only. Interest must be assessed separately under the applicable provisions and facts, rather than assumed to be zero.
15. Is this the same as Rule 37A?
No. Keep the recipient's payment condition and supplier-related filing/payment conditions as separate tests and reconcile any overlapping adjustments.
16. Can I defer the entire exercise to GSTR-9?
Do not substitute an annual review for the prescribed Rule 37/GSTR-3B process. Maintain invoice-level tracking through the applicable periods.
Organising the supporting working
Keep the underlying records, calculation and conclusion linked to the same entity and period. When organising work with assureTax and the assureOffice tools, retain these supporting schedules alongside the final output and use only the features confirmed for the version available to you.
Conclusion
Build the working at invoice and tax-head level. Retain supported payment allocation, calculate the unpaid gross proportion, assess interest separately and keep each reclaim tied to its original eligible reversal.