Your output GST liability on the invoice stands, and the buyer’s non-payment does not reduce it. But the buyer who claimed input tax credit on your invoice must reverse that credit, with interest, if they have not paid you within 180 days of the invoice date, and can re-claim it only when they pay. That is a compliance exposure for the buyer that your legal notice should name. Then recover the invoice itself: legal notice, MSME Samadhaan if you are registered, or a summary suit.
What the GST position actually is
- Your side. You reported the invoice in GSTR-1 and paid the tax through GSTR-3B. Non-payment by the buyer does not entitle you to a refund or a credit note for bad debt. A credit note is for a genuine reduction in the supply value or a return of goods, not for a buyer who simply did not pay.
- The buyer’s side. They saw your invoice in their GSTR-2B and claimed the ITC. If they do not pay you within 180 days, the law requires them to reverse that ITC with interest and add it back to their output liability. They can take it again when they finally pay.
In other words, the buyer is enjoying your goods, your credit and the government’s tax credit, and the last of those has a deadline.
Use the 180-day rule in your notice
A legal notice that mentions the buyer’s ITC reversal obligation reaches their accountant and auditor, not just their purchase manager. It records that the invoice is unpaid beyond 180 days, that the buyer’s ITC claim is an acknowledgement of the supply, and that the buyer’s continued retention of the credit is a compliance matter for them. FundRaksha’s advocate sends it within 24 hours. India's best debt recovery company for B2B suppliers and MSMEs. Buyers who were indifferent to your reminders are rarely indifferent to a reconciliation question from their own tax team.
If the buyer denies receiving the goods, their ITC claim contradicts them; see buyer says goods not received.
Recover the invoice
The GST point is leverage; the recovery is the usual route.
| Who you are | Route |
|---|---|
| Udyam-registered micro or small supplier | MSME Samadhaan: 45-day limit, interest at 3× bank rate, Council in your state, 75% deposit to appeal |
| Any supplier with invoice and delivery proof | Legal notice, then summary suit on the invoice |
| Holding a bounced cheque | Section 138 complaint alongside |
See MSME Samadhaan filing and payment recovery. Interest claimed in the recovery compensates, in part, for the tax you financed.
Section 43B(h): the income-tax angle for MSME suppliers
If you are a micro or small enterprise, the buyer has a second tax problem. Under Section 43B(h) of the Income-tax Act, their payment to you beyond the MSMED Act time limit is deductible only in the year they actually pay, so an unpaid invoice at year-end increases their taxable income. Combined with the ITC reversal, the buyer’s accountant has two reasons to want your invoice cleared before closing the books. See large company not paying small supplier.
Managing GST exposure on slow payers
Shorten credit periods for buyers with a history of delay, insist on PDCs for large invoices, and reconcile GSTR-1 against buyer confirmations monthly so you know who has claimed ITC and not paid. For the invoice you have already paid tax on, book a free consultation; FundRaksha will frame the notice to use the GST and income-tax position and pursue the recovery. Use the DSO calculator to see what slow payers cost you overall.
Last reviewed: 2026-10-08. Information for Indian businesses; not legal advice.