Since its inception, payment of interest under Goods and Services Tax (i.e., GST) has always been controversial. A wide amount of clarifications and amendments has been undertaken in the matter. However, notably, all are going to be at the standstill with the passing of the proposed Budget 2021 amendment.
The present article covers the current confusing provisions prevailing in the matter along with a pyramid of actions taken till the date and proposed amendment announced vide the Union Budget 2021.
Provisions of section 50 of the CGST Act, 2017 deals with the levy of interest on delay payment of tax under GST. The following pyramid of action clarifies the current provisions and various actions undertaken by the government in the matter-
Thus, summing up all the above actions, the present provision means as under-
Budget 2021 proposes the substitution of the proviso to section 50(1) of the Central Goods and Services Tax Act, 2017. As per the proposal the changes would be effective retrospectively from 1st July 2017. The proviso simply means as under-
Thus, clearing all the above confusions, the budget amendment clarifies that interest on delayed payment is payable only on the net tax liability (i.e. amount debited via electronic cash ledger) and the said provisions are effective from 1st July 2017.
Once the above amendment, as proposed vide Budget 2021, gets applicable. Interest would be calculated as under-
Interest amount = Net Tax Liability * 18% p.a. * Number of days delayed/ 365.
Please note, Net Tax Liability = amount of tax paid via electronic cash ledger
For example, M/s. XYZ had an output tax liability of INR 1,00,000 for the tax period December 2020. M/s. XYZ paid the tax late by 20 days. Notably, M/s. XYZ paid INR 60,000 using an electronic credit ledger and a balance of INR 40,000 using an electronic cash ledger.
Accordingly, interest would be payable @18%p.a. on only INR 40,000 (i.e. amount paid using electronic cash ledger) for 20 days. Thus, the interest payable would be INR 395.