Interest Under Section 50 of CGST Act 2017

Interest Under Section 50 of CGST Act 2017

Interest Under Section 50 of CGST Act 2017

By Annapoorna

The Government of India has specified the due dates for paying Goods and Services Tax (GST). Different types of taxpayers have different due dates for GST payment. If GST is not paid within the due date, interest must be paid along with the GST dues for the delay period.

When is Interest Levied under GST Law?

According to section 50(1) of the Central Goods and Services Tax (CGST) Act 2017, interest on GST liability should be paid in the following instances:

- Failure to pay GST within the stipulated period

- Making short payment for GST

Interest is calculated at 18% per annum on the tax amount or any part that remains unpaid and is deposited late on the unpaid tax liability.

Additionally, if an assessee:

- Delays depositing GST

- Makes a short payment of GST

- Wrongly claims Input Tax Credit (ITC)

- Claims more ITC than eligible

- Reduces GST liability wrongly or more than eligible

They would have to pay interest at the rate of 24% per annum on the excessive or wrongful claim or reduction. Interest is charged if the taxpayer delays paying GST liability beyond the due date. The interest period is calculated from the day after the due date until the day the dues are paid.

What is the Interest Rate for Late Payment of GST?

The interest rate for late payment of GST is 18% per annum. However, if authorities find that the assessee has misstated output tax liability in their GST return, the interest rate becomes 24% per annum. In addition to interest, penalties can be levied on the assessee under GST for erroneous return filing, fraud, or willful misstatement.

How is Interest Calculated? Let's Look at Some Examples:

Previously, interest on late tax payments was charged on a gross basis, meaning it was charged on the gross tax amount without considering the effect of Input Tax Credit (ITC). To alleviate this hardship faced by taxpayers, a proviso was inserted.

According to Central Tax Notification No. 16/2021, interest is now applied to the net cash tax liability in case of delayed GST payment.

Net cash liability = Gross GST liability – input tax credit

However, if a taxpayer is under proceedings for not paying GST, short paying GST, wrongly availing ITC, wrongly generating a refund for any reason other than fraud, or paying GST solely to evade tax, they would have to pay interest on their 'Gross GST Liability'.

Now, let's see a couple of examples to understand how interest is calculated:

Example 1:

ABC Ltd. has a GST liability of INR 40 lakhs due on June 20th, 2022. However, the company pays the tax on July 20th, 2022. The interest on the delayed payment of GST for ABC Ltd. will be:

- Interest rate: 18%

- Days in default: 30 days

- Outstanding tax: Rs. 20 lakh

The interest on delayed payment of GST would amount to INR 59,178/- (40 lakh * 18% * 30/365).

Example 2:

ABC Ltd. has a tax liability of INR 20 lakhs and ITC of INR 24 lakhs. However, the assessing officer finds that out of the ITC INR 24 lakhs, INR 16 lakhs are not allowed as per section 17(5) of the CGST Act. In this case, an interest of INR 4 lakhs has to be paid.

Interest on Delayed GST Refund

The Indian Supreme Court has ruled that if there is a delay in processing the GST refund, a 6% interest must be paid by the department to the assessee, provided the delay is inordinate.

This ruling came after the Indian Government filed an appeal in the Supreme Court against a verdict of the Gujarat High Court requiring the department to pay interest on delayed refunds at 9%, where the delay was between 94-290 days.

Interest Levy in the GST Portal

The details for late fees and interest for the previous tax period are calculated and auto-populated based on the values declared in the previous period. If a taxpayer wants to add or modify the auto-populated details of the late fee and interest payable, they can follow these steps:

Step 1: Click on the "Interest and Late fee" for the previous period tile.

Step 2: Select the checkbox for a declaration if the taxpayer wishes to declare the interest liability.

The system will calculate the interest values based on the tax-period-wise breakup of tax liability declared in the previous return period. The late fee will also be calculated based on the number of days exceeding the filing due date for the previous return period.

The taxpayer can view the turnover details of the GSTIN by clicking on the "View Your Turnover" button.

Step 3: Click on the "Confirm" button to proceed with filing GSTR-3B.

Note: If the taxpayer has made any downward changes to the auto-populated interest values, those fields will be highlighted in red, and a warning message will be displayed.

Step 4: The taxpayer will be directed to the landing page of the GSTR-3B, and the late fee and interest for the previous period tile in Form GSTR-3B will reflect the total value of Integrated Tax, State/UT Tax, Central Tax, and Cess of the previous period.

Note: Taxpayers are advised to click the "Save GSTR-3B" button at the bottom to save the data in the GST system if they want to exit at this stage and finish the filing later.

Advance Rulings on Interest

In the case of Global United Shipping India Private Limited Vs. Assistant Commissioner of Customs (Refund) 2019, the High Court of Madras held that the interest liability would start from three months after the date the refund application was made.

In the case of Andhra Organics Limited vs Commissioner of Central Tax 2018, the Ld. Commissioner (Appeals) considered the receipt date of a final order of the Tribunal to calculate interest on the refund amount.

The Customs Excise and Service Tax Appellate Tribunal (CESTAT) held that this calculation was contrary to the provisions for interest on delayed refunds, which should start from three months after the date on which the refund application was made.

Interest Under Section 50 of CGST Act 2017

By Annapoorna

The Government of India has specified the due dates for paying Goods and Services Tax (GST). Different types of taxpayers have different due dates for GST payment. If GST is not paid within the due date, interest must be paid along with the GST dues for the delay period.

When is Interest Levied under GST Law?

According to section 50(1) of the Central Goods and Services Tax (CGST) Act 2017, interest on GST liability should be paid in the following instances:

- Failure to pay GST within the stipulated period

- Making short payment for GST

Interest is calculated at 18% per annum on the tax amount or any part that remains unpaid and is deposited late on the unpaid tax liability.

Additionally, if an assessee:

- Delays depositing GST

- Makes a short payment of GST

- Wrongly claims Input Tax Credit (ITC)

- Claims more ITC than eligible

- Reduces GST liability wrongly or more than eligible

They would have to pay interest at the rate of 24% per annum on the excessive or wrongful claim or reduction. Interest is charged if the taxpayer delays paying GST liability beyond the due date. The interest period is calculated from the day after the due date until the day the dues are paid.

What is the Interest Rate for Late Payment of GST?

The interest rate for late payment of GST is 18% per annum. However, if authorities find that the assessee has misstated output tax liability in their GST return, the interest rate becomes 24% per annum. In addition to interest, penalties can be levied on the assessee under GST for erroneous return filing, fraud, or willful misstatement.

How is Interest Calculated? Let's Look at Some Examples:

Previously, interest on late tax payments was charged on a gross basis, meaning it was charged on the gross tax amount without considering the effect of Input Tax Credit (ITC). To alleviate this hardship faced by taxpayers, a proviso was inserted.

According to Central Tax Notification No. 16/2021, interest is now applied to the net cash tax liability in case of delayed GST payment.

Net cash liability = Gross GST liability – input tax credit

However, if a taxpayer is under proceedings for not paying GST, short paying GST, wrongly availing ITC, wrongly generating a refund for any reason other than fraud, or paying GST solely to evade tax, they would have to pay interest on their 'Gross GST Liability'.

Now, let's see a couple of examples to understand how interest is calculated:

Example 1:

ABC Ltd. has a GST liability of INR 40 lakhs due on June 20th, 2022. However, the company pays the tax on July 20th, 2022. The interest on the delayed payment of GST for ABC Ltd. will be:

- Interest rate: 18%

- Days in default: 30 days

- Outstanding tax: Rs. 20 lakh

The interest on delayed payment of GST would amount to INR 59,178/- (40 lakh * 18% * 30/365).

Example 2:

ABC Ltd. has a tax liability of INR 20 lakhs and ITC of INR 24 lakhs. However, the assessing officer finds that out of the ITC INR 24 lakhs, INR 16 lakhs are not allowed as per section 17(5) of the CGST Act. In this case, an interest of INR 4 lakhs has to be paid.

Interest on Delayed GST Refund

The Indian Supreme Court has ruled that if there is a delay in processing the GST refund, a 6% interest must be paid by the department to the assessee, provided the delay is inordinate.

This ruling came after the Indian Government filed an appeal in the Supreme Court against a verdict of the Gujarat High Court requiring the department to pay interest on delayed refunds at 9%, where the delay was between 94-290 days.

Interest Levy in the GST Portal

The details for late fees and interest for the previous tax period are calculated and auto-populated based on the values declared in the previous period. If a taxpayer wants to add or modify the auto-populated details of the late fee and interest payable, they can follow these steps:

Step 1: Click on the "Interest and Late fee" for the previous period tile.

Step 2: Select the checkbox for a declaration if the taxpayer wishes to declare the interest liability.

The system will calculate the interest values based on the tax-period-wise breakup of tax liability declared in the previous return period. The late fee will also be calculated based on the number of days exceeding the filing due date for the previous return period.

The taxpayer can view the turnover details of the GSTIN by clicking on the "View Your Turnover" button.

Step 3: Click on the "Confirm" button to proceed with filing GSTR-3B.

Note: If the taxpayer has made any downward changes to the auto-populated interest values, those fields will be highlighted in red, and a warning message will be displayed.

Step 4: The taxpayer will be directed to the landing page of the GSTR-3B, and the late fee and interest for the previous period tile in Form GSTR-3B will reflect the total value of Integrated Tax, State/UT Tax, Central Tax, and Cess of the previous period.

Note: Taxpayers are advised to click the "Save GSTR-3B" button at the bottom to save the data in the GST system if they want to exit at this stage and finish the filing later.

Advance Rulings on Interest

In the case of Global United Shipping India Private Limited Vs. Assistant Commissioner of Customs (Refund) 2019, the High Court of Madras held that the interest liability would start from three months after the date the refund application was made.

In the case of Andhra Organics Limited vs Commissioner of Central Tax 2018, the Ld. Commissioner (Appeals) considered the receipt date of a final order of the Tribunal to calculate interest on the refund amount.

The Customs Excise and Service Tax Appellate Tribunal (CESTAT) held that this calculation was contrary to the provisions for interest on delayed refunds, which should start from three months after the date on which the refund application was made.

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