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Companies facing cash crunch may have to reverse GST credit on delayed payments to vendors

Companies facing cash crunch may have to reverse GST credit on delayed payments to vendors

Companies which have postponed vendor payments due to a liquidity crunch brought on by the Covid-19 crisis will have to face further working capital woes due to credit reversal with interest under the goods and services tax framework, in case they don’t clear the dues within 180 days of the date of invoice.

These cash-strapped companies will have to either make payments within 180 days or reverse the tax credit they have availed of. They will also have to pay interest at 18% to the government from the date the credit was taken.

"While this provision may be a blessing in disguise for vendors as it indirectly encourages timely payment of consideration to vendors, it has opened up a can of worms for businesses during this pandemic.

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