prpri Interest Payable on Late Payment of GST: Big Relief with New Proviso Interest Payable on Late Payment of GST: Big Relief with New Proviso

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

  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

  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.

  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?

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