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.
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).