The Union Budget 2019 presented by Hon’ble Finance Minister Mrs. Sitharaman on 5th July 2019 has inserted a Proviso to remove the doubt over the interest for late payment of GST that whether the interest would be charged & payable on ‘Gross Tax Liability’ or only on ‘Net Tax Liability’. The confusion was there because Section 50 does not prescribe the amount on which interest is to be levied. The new Proviso clarifies that the interest would be levied on the part of tax which has been paid by debiting the electronic cash ledger and not on the amount pertaining to the input tax credit. This proviso is in line with the Press Release published on 22nd December, 2018 after the 31st meeting of the GST Council, where it has principally approved to amend section 50 of the CGST Act to provide that interest should be charged only on the net tax liability of the taxpayer, after taking into account the admissible input tax credit.

Interest on GST

In section 50 of the Central Goods and Services Tax Act, in sub-section (1), the following proviso shall be inserted, namely:–– “Provided that 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.”

This Proviso is a welcome step as there was a huge confusion & interpretation issue among tax experts as well as taxpayers whether the interest for late payment of GST would be charged on “Gross Tax Liability” or only on “Net Tax Liability”. The new Proviso has cleared all clouds and clarified that the Interest on delayed payment of tax to be charged only on liability payable in cash.

However, there is one exception to this rule wherein interest shall be levied on gross tax liability. The new Proviso is applicable only where the taxpayer files his return & pay his tax on his own but in case returns are filed subsequent to initiation of any proceedings under GST Act, the interest shall be levied on the Gross tax liability”.

Let’s understand this change with an example.

In the month of October 2018 M/s. ABC Trading Company has sold goods worth Rs. 10,00,000 and the applicable GST rate is 18%, the output tax liability being Rs. 1,80,000; for the same month their input tax credit was Rs. 1,60,000. In November 2018 they neither filed their return nor paid the balance tax of Rs. 20,000 in cash. They have filed their return & paid the tax of Rs. 20,000 on 30th June 2019. After the insertion of the new Proviso the interest would be payable on Rs. 20,000 and the amount of the interest (18% for 8 months) on the late payment of tax would be Rs.2,400 (20,000 x 18% x 8/12).

Before the new Proviso, due to the ambiguity and any specific provision wrt to the amount on which interest would be payable, the amount of interest (18% for 8 months) on the late payment of tax would be Rs.21,600 (1,80,000 x 18% x 8/12), even more than the amount of the tax not paid in time.

Interestingly, the interest was payable in case the return was not filed even if the “Net Tax Liability”. In the above example Let’s assume that their input tax credit was 1,80,000 and the output tax liability remain the same i.e. Rs. 1,80,000; the “Net Tax Liability” being Rs. ‘Nil’. With the new Proviso there would not be any interest payable even if the return for the month of October 2018 was filed on 30th June 2019. But before the new Proviso there would been the interest payable amounting to Rs. Rs.21,600 (1,80,000 x 18% x 8/12).

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Alok is the Co-Founder of "Finance Optima" a name synonymous with bespoke high quality, path-breaking, innovations & trendsetting services in finance , taxation, Investment & Management domain. He is a qualified Chartered Accountant and seasoned finance professional with the experience of c View Full Profile

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17 Comments

  1. Akshay says:

    What if, there is a carry forward ITC and I adjust the net payable outward GST laibility from such carry forward ITC. So even then whether i need to pay interest on the net output GST laibility or not?
    Carry forward ITC is GST.

  2. sujit Bhowmik says:

    sir, my gst no cancelled 27.8.19 suo moto cancellation by officer,after giving notice 13.8.19.after getting notice i filed return 21.8.19 upto feb-19.now i to revoke my gst .now officer ask to pay interest on out put tax not tax liability. i want to know section 50(1) is not applicable in this case? please advise. one more thing,when the officer cancell my gst no my pending return was only for 5 months.can he cancel my no legally?when i have got the notice it was more than 6 months.please advice.

  3. SANJEEV KANDRU says:

    Is the amendment applicable prospectively or retrospectively ?? I have a doubt regarding the notice which arose on liability of interest in July-17( for delay in payment of tax for the period Nov-17, Dec-17) which was calculated on gross tax liability. But I believe that, as per the amendment, Interest should be calculated on net Tax Liability. Please kindly clarify the date of applicability of the amendment

    1. CA Alok Singhal says:

      Dear Sanjeev. Your question is very pertinent.

      The entry number 99 in Finance Bill (2) 2019 which seeks the amendment Section 50 of the Central Goods and Services Tax Act, an dit says that in sub-section (1), the following proviso shall be inserted, namely:–– “Provided that 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.”.

      There is no reference to its applicability of the amendment retrospectively and hence its can not be assumed to be effective from any date before the date of the amendment.

  4. Sunil Mehta says:

    Amendment of section 50 of the CGST Act to provide that interest should be charged only on the net tax liability. Please provide notification for the same.

  5. Ashish Bajaj says:

    Sir,
    I had claimed igst credit in July 2017 mistakenly instead of purchase and that I have reversed it though drc03 in August 2018, now officer is demanding huge amount of interest . I have not used this ITC in any returns . Is his claim legitimate or he is just harassing me. It’s a matter of many lakhs

    1. CA Alok Singhal says:

      You have mentioned that you had claimed iGST Credit in July 2017 by mistake and reversed it sup moto though DRC03 in August 2018. Keeping in mind the facts of your case, you have to pay tax along with the interest and by doing this on your own to discharge your liability. The Interest at the rate of 18% per annum as specified in section 50(1) of the Act will be applicable for GST late payment. In case it is determined by the tax authorities that the taxpayer misstated output tax liability in the GST return, then interest at the rate of 24% would be applicable.

      From your query it seems that you have reversed the credit but whether you have paid the applicable interest too or not, is not clear. If you have paid the interest too then there is no further liability arises.

      But in case you have not paid the interest amount at the time of ITC reversal then there is a discrepancy to that respect and if any such discrepancy is determined by the tax authorities then in our opinion interest at the rate of 24% would be applicable on the amount of interest amount not paid by you.

      Disclaimer: The information contained in this article is provided for informational purposes only & is not intended to constitute a complete analysis of all tax considerations, hence it should not be construed as legal advice at all on the subject matter. No recipients of content from the Site, clients or otherwise, should act or refrain from acting on the basis of any content included in the article without seeking the appropriate legal or other professional advice on the particular facts and circumstances

    1. CA Alok Singhal says:

      The proviso has been inserted to remove doubts over the amount on which Interest would be applicable and it would not be unreasonable if the same is used retrospectively.

  6. Mukesh Sharma says:

    Sir,
    I have claimed ITC in July to September 2017. But party has not declared the sale in GSTR 1 till now. Can I pay the Excess Input Claimed voluntarily through my credit ledger by filing form DRC-03 ? Should I pay interest because section 50 is inserted recently, I just came to know this (Section 50) and I have not received any notice from department. Please help.

    1. CA Alok Singhal says:

      In such case You can make voluntary payment before issue of notice u/s 73 or 74 of the CGST Act, 2017 along with the interest applicable i.e. 18% per annum. for the period starting the due date of filing of GSTR-3B pertaining to the invoice in question.

      1. Mukesh Sharma says:

        Sir
        I have the bill copies and payment details. I do not have any fault. What action can be taken against the supplier ? Interest is 18% or 24% ?

        1. CA Alok Singhal says:

          Keeping in mind the facts of your case, you have to pay tax along with the interest and by doing this on your own to discharge your liability. The Interest at the rate of 18% per annum will be applicable for GST late payment. In case it is determined by the tax authorities that the taxpayer misstated output tax liability in the GST return, then interest at the rate of 24% would be applicable.

  7. Girdhari Agarwal says:

    What if, there is a carry forward ITC and I adjust the net payable outward GST laibility from such carry forward ITC. So even then whether i need to pay interest on the net output GST laibility or not?

    1. CA Alok Singhal says:

      Hello before I reply to your query, should we assume that the “Carry Forward ITC” as mentioned by you is “GST ITC” only?

    1. CA Alok Singhal says:

      The proviso has been inserted to remove doubts over the amount on which Interest would be applicable and it would not be unreasonable if the same is used retrospectively.

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