The GST regulations necessitate taxpayers to pay interest on late payment of GST liability. It is the responsibility of the taxpayer to calculate interest on late payments. One must accurately calculate interest to ensure proper discharge of interest liabilities as per law. To facilitate the taxpayers, the interest calculator functionality in GSTR-3B has been introduced.

What is the interest calculator in GSTR-3B functionality?

The GST Network (GSTN) has brought various changes to the IT infrastructure for the indirect tax regime. One of the changes is the introduction of the interest calculator. The interest calculator assists taxpayers in computing interest for belated tax payments.

This new functionality shall automatically calculate the interest payable on late tax payments based on the values entered in GSTR-3B for a specific tax period. The interest will relate to late payment of net output tax liability, i.e., the amount of tax paid by way of debit to the electronic cash ledger. Taxpayers can verify and discharge the correct interest liability as per law. The interest on late payment will reflect in the GSTR-3B of the subsequent period.

Background to auto-population of system computed interest

Section 50 of the CGST Act, 2017 asserts that interest will be levied on late payment of GST liability for a particular period. Interest is levied on net GST liability after reducing eligible input tax credit from total output tax. This implies that interest will be calculated on the amount paid by cash to discharge the GST liability.

Interest calculation will begin from the day succeeding the due date of filing till the date of payment of tax. The Act states that the interest rate shall be a rate as notified by the Government and shall not exceed 18% p.a. Currently, the rate of interest on late payment of tax liability has been notified to be 18% p.a.

Before this functionality, taxpayers were required to self-assess their interest liability on delayed tax payment and discharge their liabilities. This proved difficult since taxpayers could not accurately estimate their interest liabilities. There were also situations where certain taxpayers would evade payment of this interest because the interest computation was purely on a self-assessment basis. 

Changes on the GST portal in interest calculation

Interest liability with respect to supplies made during the current tax period will solely be computed on the tax paid by debiting the electronic cash ledger. However, the interest for the previous tax liabilities declared in GSTR-3B of a particular period will be computed for the entire liability. The following changes are deployed on the GST portal for the proper discharge of GST liabilities:

• Introduction of tax liability breakup: 
  • This feature allows the taxpayer to furnish tax-period wise break-up of net GST liability paid. A new button called “Tax Liability Breakup, As Applicable” is enabled in Form GSTR-3B where the taxpayer can furnish this break-up of payment made towards GST liability. 
  • This button will be available only after making payment of the liability for the periods. In case the GST liability in a particular tax period includes liabilities of previous tax periods, this feature allows the taxpayer to bifurcate the total liability towards the relevant tax periods. 
  • This feature must be used by taxpayers since non-declaration of period wise tax liability breakup will lead to inaccurate calculation of interest. Interest will be calculated on the entire tax liability assuming that it pertains to the present period.
• Interest calculation: 
  • Instead of having to enter self-assessed interest in GSTR-3B of the subsequent period, the new interest calculator will auto-compute the interest and display it in the return.
  • Interest is computed for each tax-period based on break-up of tax liability declared in the previous return. 
  • Interest on late payment of tax liability for each period is calculated as per the following formula: 

Interest Liability = Tax liability × (Number of days from due date till actual date of filing/Number of days in a year) × Interest rate

The taxpayer can verify the auto-computed interest and confirm the total interest. The taxpayer can also edit the interest computed and proceed to discharge the liability. But on downward editing of the interest values, a warning message will be displayed by the system. Despite this, the taxpayer will be allowed to proceed with filing the return.

• The interest calculator feature will not impact taxpayers who have not made any delayed tax payment in the prior periods.

Example of how interest calculation in GSTR-3B works

• The taxpayer declares their output tax liabilities and the eligible input tax credit in form GSTR-3B, including past periods’ liabilities. The taxpayer can make payment of their GST liabilities. Once the taxpayer makes the payment of the liability, the clicks “Tax Liability Breakup, As Applicable” button will be enabled.

• Taxpayers can click this button to declare the period wise break-up of GST liability paid. Taxpayers will declare the break-up head wise. Once the break-up is entered, the total of all the periods must equal the total GST liability paid in that return.

• After declaring the same, the save button can be clicked, and the taxpayer can proceed to file the return.
• Once the return is filed, the late fees payable and interest on late payment of tax liability will auto-reflect in the return of the subsequent period.
• The interest will be calculated per section 50 of the CGST Act, 2017. Interest will be auto-calculated and displayed in Table 5.1 of GSTR-3B – Interest and late fee for the previous tax period. Interest calculated for each tax period will be totalled, and the same will reflect in the respective cells.

• The taxpayer can confirm the auto-computed interest values and can alter the values. However, the system will display a warning message on the downward alteration of the interest, and the interest cell will turn red.

• Despite the warning, the taxpayer can proceed and file the return.