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The Indian government has specified the due dates for paying Goods and Services Tax (GST). The due date for GST payment for monthly taxpayers is the 20th of the subsequent month, and for composition scheme dealers, the due date is the 18th of the subsequent quarter. There would be interest implications for the delay in payment of taxes, short payment, availing bad input tax credit, and so on.
Section 50 of the CGST Act contains the provisions for levying interest on delayed payment of the output GST liability. Calculation of interest on delayed payment of tax has been a point of debate for a long time, and dust does not seem to be settling as of now very soon.
Earlier, the interest on delayed payment of tax was charged on a gross basis, which means interest was levied on the gross amount without considering the effect of the input tax credit. A proviso to this effect was inserted to ease this hardship felt by an assessee or the overall industry at large.
As per the proviso to section 50(1) of CGST Act 2017, a taxpayer who is liable to pay GST per the provisions of this Act and the Rules made thereunder, but
· Fails to pay the tax within the stipulated time,
· Makes short payment for the tax due to him
is required to pay interest at 18% per annum for the period for such tax, or any part of the tax remains unpaid.
Further, a taxpayer who makes:
· A wrongful or excessive claim of input tax credit (ITC)
· A wrongful or excessive reduction in output tax liability
would be required to pay interest on such wrongful or excessive claim or such wrongful or excessive reduction, as the case may be, at 24% per annum such wrongly utilised ITC or on the difference in output tax liability.
The interest under section 50(2) of the CGST Act would be computed from the day next day of the due date till the day the due tax is paid. If an assessee doesn’t want to get caught up in such litigation, the assessee must file the return on or before time. In case of a delay, the assessee should pay tax and interest on the net tax liability to avoid further litigation.
As per Central Tax Notification No. 16/2021, the late GST payment interest would apply to the net cash tax liability. Net cash liability is computed after deducting ITC from gross GST liability.
However, an assessee against whom any proceedings are underway for
· Tax not paid or tax paid lesser than required or wrongly refunded or availed input tax credit wrongly for any reason other than fraud (Section 73)
· Tax not paid or tax paid lesser than required or wrongly refunded or availed input tax credit wrongly for the sole purpose of evading tax (Section 73),
will be liable to payment of interest on ‘Gross Liability of Tax’.
XYZ Ltd must pay the GST of Rs.20 lakh on or before 20th May 2019. However, it managed to discharge the tax liability on 20th June 2019. The interest on tax which XYZ Ltd. has to pay will be:
Interest rate – 18%
No. of days default – 31 days (not considering 20th May)
Outstanding tax – Rs.20 lakh
The interest on delayed payment of GST would be Rs.30,576/- (20 lakh*18%*31/365).
XYZ Ltd. has an output tax liability of Rs.10 lakh and has an input tax credit of Rs.14 lakh. However, it was found that out of the input tax credit of Rs.14 lakh, Rs.6 lakh is ineligible u/s 17(5) of the CGST Act. The interest, in this case, would be payable on Rs.2 lakh for the period of default.