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

The interest rate notified is 18% w.e.f. 1-7-2017 vide Notification Nos. 6/2017-IT, dated 28-6-2017 and 13/2017-CT, dated 28-6-2017.

Calculation of late interest on GST with example

Example -1 

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:

  • Interest rate (18% as per section 50)
  • No. of days default (31 days, we shall not count 20th may)
  • Outstanding tax (Which is Rs.10 lakh)

Hence, interest on late payment of tax will be Rs.15,287/- (10 lakh*18%*31/365).

Example -2 

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 

=20000*4/365*18%=39.45

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 cavinodchaurasia@gmail.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)

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Qualification: CA in Practice
Company: VINOD CHAURASIA & ASSOCIATES (CHARTERED ACCOUNTANTS)
Location: NEW DELHI, New Delhi, IN
Member Since: 07 Jun 2017 | Total Posts: 62

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17 Comments

  1. SATYAJIT BASU says:

    If an assessee reflects his monthly liability in GSTR1 but ultimately discharge liabilities after few months alongwith other month’s liability in GSTR3B and entire amount is offset with accumulated ITC then whether the assessee have to pay interest or not?Please advise.

  2. SOUMYA SHARMA says:

    Sir,
    while filling the interest in (GSTR-3B) CGST colomn, system automatically takes SGST too with the same amount.
    As my interest liability is different in CGST & SGST.
    How can i pay the same??

  3. Chandrashekar A S says:

    I have a dout Regarding Interest on filing GSTR 3B
    If I mada a sales of Rs. One lakh GST portion will be 18,000 in the same month ITC available of Rs.14,000 and previous month ITC available of Rs.2000 now I have to pay Rs.2000 in cash but interest is calculated on 4000 or 2000?

  4. raunak says:

    Sir, If have availed less ITC in 3B for a month inadvertently by mistake than what was actually available to me as per the Invoices and as per the 2A also. Then can the interest liability be calculated on the net liability after reducing the ITC which was available in 2A or it would be done by what i have availed in 3B.

  5. Hemand Haari says:

    As we are all enjoying this leap year, Can i take the benefit of calculating the interest to be discharged at 18% per annum by 366 days instead of 365. (Considering the due date of payment is after February 2019 only).

    1. gst.healer@gmail.com says:

      Sir, interesting question. As per the Notification No.13/2017-CT dated 18 % interest is notified for a year (per annum). The no of days in a year may be 365 or 366. However, 18 % is for the whole year. Hence, no of days available in a PARTICULAR YEAR have to be taken in to account for calculation.

  6. Pawan Chahar says:

    I have regularly deposit tax challan on my GST portal but not filed GST3B. I have deposited GSTR3B with penalty. So my question is I am liable to pay interest also while I have paid tax through challan every month.

    1. gst.healer@gmail.com says:

      Sir, Unless in earlier laws i.e. Central Excise & Service Tax, there is no due date for payment of tax under GST law instead due date for furnishing return is prescribed under section 39. Whenever we deposit the amount, it will be credited in to our Electronic Credit Ledger only which can not be considered as discharging tax liability. Only when debit entry is made in Electronic Cash/Credit Ledger, that date is considered as “Date of Payment”. Hence, you may receive notice from the department very soon. If the amount in dispute is considerable, then you may approach the court where there is a possibility of favourable order for your case.

    1. gst.healer@gmail.com says:

      Sir, no interest is payable for reversal of wrongly availed ITC in Tran-1, if the same was not utilized for payment of outward tax liability. The department insists the taxpayers to pay interest on reversal of TRAN-1 credit (ineligible credit) under section 50(3) of CGST ACT 2017. However, it is very clear that section 50(3) does not cover TRAN-1 case and it covers the cases of sec 42(10) & 43(10) which are mismatch cases

  7. Dinesh N Shenoy says:

    Supritendent of CGST has raised recovery for Interest u/s 50(1) for late filing of returns. Interest is calculated on liability adjusted to Inpute tax credit.
    During the month there was no cash payment of Tax. all liability was seoff to inpute tax credit.
    is this justifyable.

  8. Kamlesh says:

    Interest Payable Comes only on SGST Head. but when i Fill the interest in the Interest Section its Automatically Fill CGST Head To.

    So how Can Pay..

  9. Vijay Kumar says:

    It is difficult to undertstand.
    We file GSTR-1, showing our tax liability.
    2. The input tax credit needs to be deducted out of this liability as per GSTR-2
    3. Resultant is GSTR-3, is the ultimate tax liability.
    With GSTR-1, GSTR-2 ( Input Tax Credit on purchases) having been extended up to 5th Oct. and GSTR-2, GSTR-3 also, how can the ultimate liability can be determined?, and how can the GST be paid?
    Things are not clear, therefore Tax liability can not be discharged.

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