Lots of recommendations, some in favour of the registered person and some against, were done vide the 47th GST Council Meeting. Two such favourable recommendations with regard to interest on late payment of GST were –
- It was recommended to notify section 111 of the Finance Act, 2022 at the earliest.
Notably, vide section 111, provisions of section 50(3) of the Central Goods and Services Tax Act, 2017 were substituted. As per the substituted provisions, interest will be payable only when the wrongly availed Input Tax Credit is utilized. However, the said substituted provisions were pending to be notified. - Another recommendation was to provide a rule covering the manner/ method of calculating interest, in order to remove the ambiguities with regard to the manner of calculating interest.
Acting on both the above recommendations of the GST Council, the following actions were taken by the Central Board of Indirect Taxes and Customs –
Recommendation of GST Council | Action by CBIC |
|---|---|
Notify section 111 of the Finance Act, 2022 | Vide notification no. 09/2022- Central Tax dated 5th July 2022, the provisions of section 111 were notified with effect from 5th July 2022. |
Provide rule covering the manner of calculating interest | Vide notification no. 14/2022- Central Tax dated 5th July 2022, rule 88B was inserted which briefly prescribed the manner of calculating interest on delayed payment of tax. |
The current article covers all the details of the basic provisions governing interest under GST and also a manner of calculating interest on late payment of GST as prescribed under newly inserted rule 88B of the Central Goods and Services Tax Rules, 2017.
Notices for Late Filing of GST
Getting notice from the GST department is the worst nightmare for a taxpayer. However, taxpayers do not need to fear if they are well aware about the types of GST notices and its purpose.
In this section we will discuss the notices that taxpayers receive for demanding to pay interest on the delayed GST filing.
Taxpayers can get a notice requesting to pay interest on the delayed GST filing under Sub-section 1 of Section 50 of the CGST Act of 2017.
Which are the two types of notices are possible
- Reminder to pay interest under the Section 50 of the CGST Act
- Notice in case where ITC is obtained after the time limit has expired
Reasons for GST Notice
A taxpayer may attract a GST notice for the following reasons:
- The GST return is filed after the due date of that tax period
- The GST Input Tax Credit claim has been availed after the prescribed time limit to claim GST Input Tax Credit.
Caveat:
The time limit to claim Input Tax Credit under GST on any invoice is either of the following:
- The due date for GST return filing for the September month of the following Financial Year.
- The date for filing the annual GST return in the Form GSTR-9 for that Financial Year.
How to reply to this GST Notice?
The two notices mentioned in the previous section can be understood simply from their titles.
- The first notice type is just a reminder to pay the interest under the Section 50 sub-section 1 of the CGST Act. In case if a taxpayer has already paid the interest, this notice can be swiftly ignored.
- The second notice is a more specific notice issued in cases where GST Input Tax Credit has been obtained after the time limit has expired.
In the second case, the applicable interest rate on the late payment of tax should be paid in the response to this notice. For notices pertaining to ineligible Input Tax Credit, the ITC has to be reversed by paying the equivalent tax amount plus the interest.
Following are the steps that the taxpayer should take:
Interest on Late Payment of GST : Basic Provisions
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Provisions relating to interest on late payment of GST are covered under section 50 of the Central Goods and Services Tax Act, 2017. The gist of the provision is simplified in the table below
Situation | Corresponding provisions |
|---|---|
Interest payable on delayed payment of tax. Wherein, the tax is declared in return in Form GSTR 3B, however, such return is furnished after the due dates. In nut-shell, it is a current period liability which is paid belatedly as the return in furnished after GST due dates. | Interest in such a situation will be payable @ 18%. As per proviso to section 50(1), interest will be payable only on that portion of the tax which was paid by debiting ‘electronic cash ledger’. |
Interest On Late Payment of GST. Wherein, the return is furnished after commencement of proceedings either under section 73 (i.e., non-fraud cases) or under section 74 (i.e. fraud cases) | As per the provisions, interest in such case will be payable on the gross amount of tax payable (i.e. tax paid by debiting electronic cash ledger + tax paid by debiting electronic credit ledger). |
Interest payable on input tax credit wrongly availed | In case of input tax credit wrongly availed, interest will be payable at @24% (@18% if notified) only when the input tax credit is utilized. In case such input tax credit is reversed before utilization, then, no interest will be payable. |
How to Calculate Interest on Late Payment of GST
Central Goods and Services Tax (Amendment) Rules, 2022 were notified vide notification no. 14/2022- Central Tax dated 5th July 2022. Accordingly, rule 88B was inserted to the Central Goods and Services Tax Rules, 2017 which briefly prescribed the manner of calculation of Interest on Late Payment of GST.
Importantly, the provisions of rule 88B of the Central Goods and Services Tax Rules, 2017 are made effective retrospectively from 1st July 2017.
The manner of calculating interest on delayed payment of tax as per the said new rule 88B of the Central Goods and Services Tax Rules, 2017 is explained hereunder –
Situation 1 – Supplies of the tax period are declared in the return and such return is furnished after the due date
- The rate at which interest is payable – 18%;
- Amount on which interest is payable – only on the amount of tax which is paid by debiting ‘electronic cash ledger’. Please note, here, the interest will not be payable on the amount of tax which is paid by debiting the ‘electronic credit ledger’;
- Period for which interest is payable – period of delay in GST return filing beyond the due dates.
Situation 2 – In any other case (other than situation 1), wherein, the tax was payable but paid late
- The rate at which interest is payable – 18%;
- Amount on which interest is payable – the amount of tax which remains unpaid;
- Period for which interest is payable – the period starting from the date on which the tax was due till the date on which the tax was paid.
Situation 3 – Input tax credit wrongly availed and utilized
- The rate at which interest is payable – 24%/18%;It is important to note here that provisions of section 50(3) state that the rate of interest should not exceed 24%. Further, a rate of 18% was proposed vide the Finance Act, 2022. However, the same is still not notified.
Once the rate of 18% is notified, interest in case of input tax credit wrongly availed and utilized will be payable at @ 18%, with effect from 1st July 2017. - Amount on which interest is payable – the amount of input tax credit which is wrongly availed and utilized;
- Period for which interest is payable – the period starting from the date of the utilization of wrongly availed input tax credit till the date of such reversal input tax credit.
Notably, in situation 3, as per explanation (1) to rule 88B of the Central Goods and Services Tax Rules, 2017, input tax credit wrongly availed will be considered as utilized
- When the balance in the electronic credit ledger falls below the amount of input tax credit wrongly availed; and
- The amount of utilization of input tax credit, for the purpose of interest, will be the amount by which the balance of the electronic credit ledger falls below the amount of input tax credit wrongly availed.
Get the complete deeply understanding of GST ledgers and register in tabular format and briefly answered on what is ledgers in GST?, How to download Electronic Cash Ledgers and others.
Calculation of Wrongly Availed ITC with Example
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Month | Opening balance of electronic credit ledger | Eligible input tax credit | ITC wrongly availed | Total input tax credit | Output tax liability paid through electronic credit ledger | Closing balance of electronic credit ledger | Interest payable amount |
|---|---|---|---|---|---|---|---|
September | NIL | 80,000 | 20,000 | 1,00,000 [80,000 + 20,000] | 60,000 | 40,000 | NIL |
October | 40,000 | 50,000 | NIL | 90,000 [40,000 + 50,000] | 80,000 | 10,000 | 10,000 |
November | 10,000 | 60,000 | NIL | 70,000 [10,000 + 60,000] | 50,000 | 20,000 | NIL |
December | 20,000 | 40,000 | NIL | 60,000 [20,000 + 40,000] | 60,000 | NIL | 10,000 |
As per explanation (2) to rule 88B of the Central Goods and Services Tax Rules, 2017, the date of the utilization of wrongly availed input tax credit will be –
Particulars | Date of the utilization of wrongly availed input tax credit |
|---|---|
When the balance in electronic credit ledger falls short of amount of wrongly availed input tax credit on account of payment of tax through return under section 39 | Earlier of –
|
In any other case | Date of debit in the electronic credit ledger when the balance in the electronic credit ledger falls short of the amount of input tax credit wrongly availed. |
Interest on Late Payment of GST : Interest Applicability
The following table helps to simplify the calculation of Interest on Late Payment of GST as prescribed under rule 88B of the Central Goods and Services Tax Rules, 2017
Particulars | Interest | Payable | Payable |
|---|---|---|---|
Interest on Late Payment of GST due to late filing of return under section 39 | 18% | Tax paid by debiting electronic cash ledger | Due date of furnishing of return till actual date when the return was filed |
Interest on Late Payment of GST due to any other reason | 18% | The entire amount which remains unpaid (it includes both tax paid by debiting electronic cash ledger and tax paid by debiting electronic credit ledger) | The date on which the tax was due till the date on which the tax was paid |
Interest on wrongly availed and utilized input tax credit | 24% (18% as and when the rates will be notified) | The amount by which the balance of electronic credit ledger falls below the amount of input tax credit wrongly availed | Date of the utilization of wrongly availed input tax credit till the date of reversal of such input tax credit |
It is important to note that even though the provisions of rule 88B are notified vide notification no. 14/2022- Central Tax dated 15th July 2022. The said provisions are given retrospective effect and made applicable from 1st July 2017.
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