The method of calculating interest on delayed GST payments with respect to Section 50 of the CGST Act is provided by CGST Rule 88B, which was added by Notification No. 14/2022-Central Tax dated July 5, 2022 and is applicable retrospectively from July 1, 2017. We will discuss this rule in this article.

Input tax credit and outgoing liability information must both be included in the GSTR 3B return. The remaining amount must be paid at the time the return is filed after the output tax liability has been offset by the input tax credit. Interest will be charged on the net liability when such a return is filed late.

CGST Rule 88B prescribes the manner of calculating interest on such delayed payment of tax while filing the return.  Accordingly, as per Rule 88B(1), where the return in accordance with the provisions of section 39, is filed after the due date, except where such return is furnished after commencement of any proceedings under section 73 or section 74, interest shall be calculated on the amount which is paid by debiting the electronic cash ledger, i.e. interest shall be calculated on the liability after adjusting eligible input tax credit available in Electronic Credit Ledger.  So, if you have an excess input tax credit over the output tax liability, though the return is filed with delay, interest will not be applicable.  Let’s examine an illustration:

Total Liability

Input Tax Credit Net Liability

Liability on which Interest is applicable

5,00,000

3,00,000 2,00,000 2,00,000

5,00,000

1,00,000 4,00,000

4,00,000

5,00,000 6,00,000

The period for calculating interest starts from the date when the filing of return is due till the date when such return is filed.

According to Rule 88B(2), in all other cases, interest is payable on the total tax liability that remains unpaid, calculated from the date when the tax is due till the date when such tax is paid.

Rule 88(3) prescribes the method for calculating interest on the input tax credit wrongly availed and utilised.  Interest will be calculated for the period starting from the date of utilisation of such wrongly availed input tax credit till the date of reversal of such credit or payment of tax in respect of such amount.

Input tax credit wrongly availed shall be construed to have been utilised, when the balance in the electronic credit ledger falls below the amount of input tax credit wrongly availed.  Interest will be applicable on the amount, by which the balance in the electronic credit ledger falls below the amount of input tax credit wrongly availed.  Let’s consider a situation:

Month Opening Balance in Electro-nic Credit Ledger (A) Eligible ITC (B) ITC wron-gly availed (C) Total ITC (D) =(A+B+C) Output Liability (E) Closing Balance in Electronic Credit Ledger                (F)=(D-E) Amount on which Interest is applic-able
April

7,00,000 50,000 7,50,000 7,00,000 50,000

May

50,000

5,00,000 5,50,000  5,00,000 50,000

June

50,000

3,00,000      3,50,000  3,30,000 20,000

30,000

July

20,000

6,00,000      6,20,000 6,20,000 20,000

The aforementioned scenario makes the following points clear:

1. April – ITC of Rs.50000/- was wrongly availed but the same was not utilised as we had an ITC of Rs.700000/- which was utilised against the output liability of Rs.700000/- and the balance in the electronic credit ledger (Rs.50000) didn’t fall below the ITC wrongly availed (Rs.50000), so interest is not applicable as ITC wrongly availed has not been utilised.

Calculation of Interest on Delayed Payment of GST (Rule 88B) with Examples

2. May – Unutilised ITC of Rs.50000/- wrongly availed is carried forward to the current month, however the same is not utilised as the eligible ITC of Rs.500000/- is enough to adjust against the output liability of Rs.500000/-, no interest is applicable and again balance in the electronic credit ledger doesn’t fall below the ITC wrongly availed.

3. June – Wrongly availed ITC of Rs.50000/- is carried forward to the current month as it has not been utilised, however Rs.30000/- is utilised out of Rs.50000 when we had shortage of eligible ITC (Rs.30000/-) to adjust against the output liability of Rs.330000/-, interest shall be applicable on Rs.30000/- as the same is utilised in the current month

4. July – Out of Rs.50000/-, Rs.30000/- was already utilised and the balance of Rs.20000/- was carried forward to the current month. Since eligible ITC (Rs.600000/-) is lesser than the output liability of Rs.620000/- and the remaining wrongly availed ITC of Rs.20000 is utilised, therefore interest shall be applicable for Rs.20000/-

Since the interest shall be applicable on the utilised ITC wrongly availed, the determination of date from when such interest is applicable as explained below:

The date of utilisation of ITC shall be the date on which the return is due to be furnished under section 39 or the actual date of filing of the said return whichever is earlier when the balance in the electronic credit ledger falls below the ITC wrongly availed, on account of payment of tax through the said return or the date of utilisation of ITC shall be the date of debit in the electronic credit ledger when the balance in the electronic credit ledger falls below the ITC wrongly availed in all other cases.  The following example explains the rule:

Due Date

Filing Date

Date of Utilisation

20/06/2022

20/06/2022 20/06/2022

20/06/2022

18/06/2022

18/06/2022

20/06/2022 25/06/2022

20/06/2022

For tax payers who inadvertently availed ITC but did not utilise it against output liability, it is a huge relief because they need not to pay interest on the portion of the credit that was not utilised.

For any assistance in GST, contact: uday.gstguide@gmail.com

Disclaimer: This article is only for the purpose of understanding the provisions of the Act, The author bears no responsibility on decisions taken by the readers whatsoever.  E&OE.

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7 Comments

  1. surender says:

    Good evening sir,
    our tax payer inadvertently availed IGST ITC wrongly in the month of July 2018 of Rs 156000 and it has been been utilized partly towards CGST & SGST output tax from august 2018 to December 2021 ( i.e. 2018-19 to 2020-21 ) in spite of ITC available under CGST& SGST) but meanwhile utilizing the Wrong availed IGST , Balance of Electronic Credit ledger ( i.e IGST (wrong) , CGST & SGST together balance) has fallen below the Wrong availed IGST with Gap ( deficit) around Rs 10, 000 to Rs 30000 during the Utilization period.
    As per 88B(3) interest chargeable either on Rs 156000/- or Deficit balance (Gap) of 10,000 to 30000/- For example : Balance in credit ledger ( incl. wrong availed IGST Bal + CGST & SGST) ( 125000 Plus (10000+10000 ) = 145000) thus 156000-145000 = 11000 . Hence Rs 11000 is wrong utilized IGST ITC is it Correct sir, please explain
    Input tax credit wrongly utilized = Amount of input tax credit wrongly availed (-) Balance available in the electronic credit ledger

  2. surender says:

    Good evening sir,
    our tax payer inadvertently availed IGST ITC wrongly in the month of July 2018 of Rs 156000 and it has been been utilized partly towards CGST & SGST output tax from august 2018 to December 2021 ( i.e. 2018-19 to 2020-21 ) in spite of ITC available under CGST& SGST) but meanwhile utilizing the Wrong availed IGST , Balance of Electronic Credit ledger ( i.e IGST (wrong) , CGST & SGST together balance) has fallen below the Wrong availed IGST with Gap ( deficit) around Rs 10, 000 to Rs 30000 during the Utilization period.
    As per 88B(3) interest chargeable either on Rs 156000/- or Deficit balance (Gap) of 10,000 to 30000/- For example : Balance in credit ledger ( incl. wrong availed IGST Bal, , CGST & SGST) ( 125000+10000+10000 = 145000) thus 156000-145000 = 11000 . Hence Rs 11000 is wrong utilized IGST ITC. please explain sir

  3. G GIRI says:

    respected sir,
    good information. but i have a doubt , please check the following
    out put declared in GSTR -1 for apl-2022 =3,00,000
    out put declared inGSTR3Bfor apl-2022= 2,50,000
    no input and tax paid in cash 2,50,000
    balance of out put declared in june-2022 and paid 25,000 after adjustment of input tax credit . now i have to pay interest on either on 25,000 or 50,000 please discus .
    note – please presume no notices issued .disclosed escaped out put tax voluntarily in june-2022
    thanking you

    1. yoursgstguide says:

      Hi Mr.Giri,

      Please note since you had no ITC at the time of the liability of Rs.50000/- is due, i.e. April, you have to pay interest for the liability of Rs.50000/- only, till June. Interest is applicable on the amount that is paid by debiting the electronic cash ledger.

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