Understanding Interest Charges on Delayed GST Payments – Compliance and Consequences Explained
- Blog|GST & Customs|
- 6 Min Read
- By Taxmann
- |
- Last Updated on 7 May, 2024
Latest from Taxmann
What are the Interest Charges on Delayed GST Payments? Interest charges on delayed GST (Goods and Services Tax) payments in India are designed to encourage timely compliance and ensure that the government receives its tax revenues on schedule. Here are the key details regarding the interest rates for delayed GST payments: – Interest Rate for Late Payment of Tax: The standard interest rate for late payment of GST is 18% per annum. This rate applies when there is a delay in paying the tax that is due after filing GST returns. – Higher Interest Rate for Specific Violations: For undue or excess claims of Input Tax Credit (ITC) or undue or excess reduction in output tax liability, a higher interest rate of 24% per annum is charged. This is to deter the misuse of tax credits or misreporting in tax liabilities. – Calculation Method: Interest is calculated on a daily basis from the day following the due date of the payment until the actual date of payment. The interest is computed on the net tax liability after taking into account any tax credits. – COVID-19 Relief Measures: Occasionally, the government has offered temporary relief by reducing interest rates for delayed payments, particularly in response to the COVID-19 pandemic. These reductions have generally been targeted at specific taxpayer groups or for certain periods to mitigate the financial strain. Proactive Measures for Avoidance: To avoid incurring interest charges, taxpayers should ensure that they are aware of all GST due dates and comply accordingly. Using automated accounting tools can help track and manage these deadlines effectively. Taxpayers need to keep up with any changes or announcements from the Central Board of Indirect Taxes and Customs (CBIC) regarding GST regulations, including any adjustments to interest rates or compliance guidelines.
Table of Contents
- Introduction
- When interest is charged?
- What amount is subject to interest charges?
- When is interest charged on total output tax liability?
- What is the period of interest?
- Is interest charged on wrong/availment and utilization of ITC?
- What is the date of utilization and its extent?
- Conclusion
1. Introduction
In the realm of tax compliance, time is money, quite literally. Late tax payments come with a price in the form of interest, a gentle nudge to encourage punctuality rather than a penalty. To encourage increased compliance and punctuality in tax payment, interest is levied on tax dues that are not settled within the specified timeframe.
The obligation for interest payment is placed on taxpayers who delay the settlement of their tax liabilities beyond the prescribed deadline. It’s essential to note that this interest is essentially compensatory in nature, serving as a means to make up for the delayed payment, and it differs significantly from a penalty, which is penal in its character. Similarly, in alignment with this principle, Section 50 of the CGST Act, 2017 establishes the application of interest in cases of default in tax payment within the designated time frame.
2. When interest is charged?
As per Section 50(1) read with Rule 88B of CGST Act, 2017, every person who is liable to pay tax but fails to pay the tax or any part thereof to the government within the period prescribed, shall for the period for which the tax or any part thereof remains unpaid, pay, on his own, interest at 18% p.a.
3. What amount is subject to interest charges?
If the lawmaker demands tax dues along with interest on the gross payments i.e. tax paid through electronic cash ledger and credit ledger both, it may be an unhealthy practice from a business perspective. To counter such recovery mechanism, the proviso under Section 50 provides that when a registered person has paid his taxes through a return specified under Section 39 of CGST Act, 2017 belatedly, interest shall be applicable only on the net taxes paid through electronic cash ledger and not on the gross taxes paid for such tax periods.
For example, taxable persons other than non-resident and composition levy tax persons have to file GSTR-3 Return electronically for every month, on or before the 20th day of the month succeeding the tax period (the month for which return is filed). Any person filing the said return after the due date has to pay interest on delayed payment on tax only on the amount paid by debiting electronic cash ledger, that is, entire output tax liability less input tax credit claimed. If no tax is paid through cash ledger no interest is charged.
4. When is interest charged on total output tax liability?
Where such return is furnished after commencement of any proceedings under section 73 or section 74 in respect of the said period or for any other reason otherwise of belated return, the interest will be payable on the total amount of output tax liability, that is, without setting off the input tax credit claimed, at the rate of 18% p.a.
If the deductor has not remitted the amount deducted as TDS to the government within the prescribed time limit, he is liable to pay interest under Section 50 in addition to the amount of tax deducted.
5. What is the period of interest?
As per Section 50(2) of CGST Act, 2017, the period of interest will be from the date following the due date of payment to the actual date of payment of tax. The liability for interest can be settled by adjustment with balance in electronic cash ledger but not with balance in electronic credit ledger. The payment of interest in case of belated payment of tax should be made voluntarily i.e. even without a demand.
6. Is interest charged on wrong/availment and utilization of ITC?
As per Section 50(3) read with Rule 88B of CGST Act, 2017, where the input tax credit has been wrongly availed and utilized, the registered person shall pay interest on such input tax credit wrongly availed and utilized, at the rate of 18%. The period of delayed interest payment shall be starting from the date of utilization of such wrongly availed input tax credit till the date of reversal of such credit or payment of tax in respect of such amount, at 18% p.a.
7. What is the date of utilization and its extent?
Input tax credit wrongly availed shall be construed to have been utilized, when the balance in the electronic credit ledger falls below the amount of input tax credit wrongly availed, and the extent of such utilization of input tax credit shall be the amount by which the balance in the electronic credit ledger falls below the amount of input tax credit wrongly availed.
As per Circular No. 192/04/2023 GST, since the amount of ITC available in ECL under any of the heads of IGST, CGST, or SGST can be utilised for payment of liability of IGST, it is the total ITC available in ECL under the heads of IGST, CGST, or SGST, taken together, that is to be considered for calculation of interest under this rule and for determining as to whether the balance in the ECL has fallen below the amount of wrongly availed ITC of IGST and its extent.
- The date on which the return is due to be furnished under section 39 or the actual date of filing the said return, whichever is earlier, if the balance in the electronic credit ledger falls below the amount of input tax credit wrongly availed, on account of payment of tax through the said return; or
- The date of debit in the electronic credit ledger when the balance in the electronic credit ledger falls below the amount of input tax credit wrongly availed, in all other cases.
Let us understand this with an example,
On 1/11/2023 Mr X has total ITC of Rs. 1,00,000 out of which Rs. 40,000 is wrongly availed. While filing GSTR 3B for the month of October on 15/11/2023, he utilized Rs. 70,000 of the total ITC. Later, On 7/12/2023, he realized that he wrongly availed the blocked credit of Rs. 40,000 and now wants to reverse it. The interest payable by Mr. X would be charged on the amount of his balance in electronic credit ledger after filing GSTR 3B (of Rs. 30,000) falling short of wrongly availed ITC (of Rs. 40,000), that is, Rs. 10,000. The date of utilization shall be the earlier of the due date of filing return (20/11/2023) or actual date of filing (15/11/2023), therefore 15/11/2023.
The interest payable is on Rs. 10,000 for 22 days (15/11/2023 to 7/12/2023), that is, Rs. 108.5 (10,000 *22/365*18%). If the balance in electronic credit ledger never falls down the amount of wrongly availed ITC, no interest is paid while reversing the amount.
8. Conclusion
In conclusion, the provision of interest charged under GST under Section 50 serves as a crucial component in ensuring compliance and timely payment of taxes. The imposition of interest acts as a deterrent against delays in tax payments, encouraging businesses to adhere to the prescribed timelines. This not only helps in maintaining a steady revenue stream for the government but also promotes a fair and equitable taxation system.
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