Interest will be levied on the cash component on delayed GST Payment from September 1, 2020, the Central Board of Indirect Taxes and Customs (CBIC) said giving relief to industry.
The GST Council, in its 39th meeting held on 14.03.2020, has made the recommendation that Interest for delay in payment of GST to be charged on the net cash tax liability w.e.f. 01.07.2017 (Law to be amended retrospectively)
However As per Notification No. 63/2020 – Central Tax dated 25.08.2020 the Central Government hereby appoints the 1st day of September, 2020, as the date on which the provisions of section 100 of the Finance (No. 2) Act, 2019 (23 of 2019), shall come into force.
It means Interest for delay in payment of GST to be charged on the net cash component w.e.f. 01.09.2020 and not 01.07.2017 as stated in 39th meeting held on 14.03.2020.
Prospective availability of this benefit would mean that millions of tax payers may be looking at demand of interest for 3 years from the date of implementation of GST. Businesses are expected to approach the High Courts on this demand of interest.
The present rate of Interest on the delayed payment is 18%p.a. on unpaid GST. Such Interest was charged on all modes of payment of tax, even when input tax credit has been used. Assesses who miss the payment of tax, has to pay the tax on entire amount even though tax payment is after claiming ITC. When demand gets finalized, interest on late payment was charged on entire amount. Effect of ITC was not taken into account while calculating interest on delayed payment of tax.
From September, amount paid in cash,i.e., after claiming ITC will be liable to interest. For example if GST Liability is Rs. 18000 and ITC is Rs. 10000 and late payment is Rs. 8000. Earlier Interest was charged on entire 18000. But now after the amendment, Interest will be charge only on balance Rs. 8000/-,i.e, on cash component.
If Liability is only to the extent of ITC than after amendment, no interest has to be paid. Earlier interest was charge on liability amount. Effect of ITC was not available.This will benefit the tax payer.
Source: 39th Meeting of the GST Council, New Delhi