Introduction: This article discusses in detail about interest payable on late payment of tax liability under GST.
As per Sec 50(1) of CGST Act 2017 , Every person who is liable to pay tax in accordance with the provisions of this Act or the rules made there under, but fails to pay the tax or any part thereof to the Government within the period prescribed time , shall for the period for which the tax or any part thereof remains unpaid, pay, on his own, interest at such rate, not exceeding eighteen per cent, as may be notified by the Government on the recommendations of the Council.”
The interest shall be calculated from the day succeeding the day on which such tax was due to be paid – section 50(2) of CGST Act. .( notification no 13/2017 – Central Tax dated 28th June 2017
Calculation of late interest on GST with example
ABC ltd needs to pay the GST of Rs.10 lakh on or before 20th May, 2018. However, it only manages to pay the tax on 20th June, 2018. Please calculate the Interest on tax which is to be paid.
To calculate the correct interest we need the following:
Hence, interest on late payment of tax will be Rs.15,287/- (10 lakh*18%*31/365).
Suppose for month of July -Output GST=100000 , Input GST=80000 ,GST payable=20000
This 20000 we have to pay by 20 August (20 of Next Month) In case we pay the same on 24 August, we are 4 days late interest will be calculated as follows
Interest will be rounded off to 39
Total amount payable =20000+39=20039
However , whether the tax need to be paid on Rs 1,0,000/- or 20,000/- in the example above is a big debated issues. Section 50 of the CGST does not expressly provide that interest is payable even on the tax liability that was offset with accumulated ITC.
Proviso to section 50(1) of CGST Act, inserted vide Finance (No. 2) Act, 2019 based on recommendations of the GST Council . As per the proviso – the interest on tax payable in respect of supplies made during a tax period and declared in the return for the said period furnished after the due date in accordance with the provisions of section 39, except where such return is furnished after commencement of any proceedings under section 73 or section 74 in respect of the said period, shall be levied on that portion of the tax that is paid by debiting the electronic cash ledger.
The effect of the proviso is that interest will be payable on net amount payable by cash through electronic cash ledger and not gross amount. However , subsequent developments by way of standing order ,judgments , tweets and interpretations created a big chaos and confusion in taxpayer’s mind . The sequence of events / actions are as follows :-
On 04.02.2019 , a Standing Order No. 01/2019 issued by the Office of the Principal Commissioner of Central Tax (Hyderabad GST Commissionerate) stating that the interest has to paid on account of delay in filing of GSTR 3B Returns on the cash & the ITC Component of the tax paid after due date i.e that the interest has to be paid on Gross Liability.
On 18.04.2019 , the position was upheld in the order of Honourable High Court of Telangana in the Case of M/s. Megha Engineering & Infra Ltd. V/s. The Commissioner of Central Tax
On 07.08.2019 , High Court of Telangana on 07/08/2019 has granted interim stay order in the case of Raghava Constructions V/s. Union of India ordering that the amendment to sec 50 of the Central GST Act,2017 would be retrospective. Therefore, the interest has to paid on net liability basis from 01/07/2017.
On 10.02.2020 , a Letter of the CBIC circulated on the social media which ordered Principal Chief Commissioner / Chief Commissioner to recover Rs.45886/- Crores remains unpaid on account of delayed payment of tax & has ordered to issue notices on Gross Basis.
On 15.02.2020 , CBIC India vide the official Twitter handle of CBIC tweeted the following statement
“The GST laws, as of now, permit interest calculation on delayed GST payment on the basis of gross tax liability. This position has been upheld in the Telangana High Court’s decision dated 18.04.2019 In spite of this position of law and Telangana High Court’s order, the Central Government and several State Governments, on the recommendations of GST Council, amended their respective CGST/SGST Acts to charge interest on delayed GST payment on the basis of net tax liability Such amendment will be made prospectively. The States of Telangana and West Bengal are in the process of amending their State GST Acts. After the process of amendment is complete, the changed provisions can be put in operation for the entire country.” That means the interest has to be collected on Gross Basis.
The Finance Minister in her budget speech of 2020 has pointed out that the harassment of Tax Payer will not be tolerated, asking a taxpayer to pay on gross is not less than harassing him which can never be the intention of the law maker. She has given assurance that the government will introduce suitable amendments to incorporate the proposed recommendations
Finally, a big relief for businesses, the Goods and Services Tax Council dated 14.03.2020 has decided that interest on delayed payments of GST would be applicable only on the net cash tax liability after deduction of available input tax credits. This change will apply on a retrospective basis with effect from July 1, 2017, the date on which GST law came into force.
The author is a practising CA based in Delhi and is registered Insolvency Professional. He can be reached at email@example.com , Mob. +91 9953587496.
Disclaimer: The views expressed in this article are strictly personal. The content of this document are solely for informational purpose. It doesn’t constitute professional advice or recommendation. The Author does not accept any liabilities for any loss or damage of any kind arising out of information in this article and for any actions taken in reliance thereon.
(Republished with Amendments. Amendments been made by CA Anita Bhadra)