Rule 88B of the CGST Act: Calculating Interest for Late GST Payments

Rule 88B of the CGST rules provides the manner in which interest should be calculated on delayed GST payments. The 53rd GST Council meeting held on 22nd June 2024 recommended benchmark changes to Rule 88B and the interest calculation thereof. In this blog, we discuss interest under Rule 88B of GST in light of the recent changes.

What is Rule 88B of the CGST Act?

As per the CGST Act, if a taxpayer fails to follow the rules notified for implementing GST, interest and penalty are charged on such delays and defaults. While Section 50 of the CGST Act specifies the interest rates, Rule 88B of the CGST rules gives the basis on which interest is chargeable if a taxpayer:

• Doesn’t file the GST return before the due date (other than the cases where the return is filed after the proceedings have started u/s 73* or 74**)

*Section 73 covers short or non-payment of tax or wrongly claimed ITC excluding cases of fraud or misrepresentation.

**Section 74 covers short or non-payment of tax or wrongly claimed ITC with the intention of fraud or willful misstatement.

• Doesn’t pay the GST amount on time
• Claims and utilises excess Input Tax Credit

When is Rule 88B of CGST Rule Applicable?

Here are the scenarios where Rule 88B of GST rules prescribes the charging of interest:

Scenario 1: Late filing of GST Return (Amendment recommended at the 53rd GST Council meeting)

All registered persons must file GST returns every month before the due dates specified as per Section 39 of the CGST Act. Rule 88B of GST states that interest should be charged, in case a return is not filed before the due date, on the entire amount debited from the Electronic Cash Ledger for tax payment (The GST Council has recommended not to charge interest on the amount available and debited in the ledger on the due date). The formula for interest calculation is:

Scenario 2: Late Payment of the GST Amount

If the registered taxpayer under the CGST Act fails to pay the tax or pays a lesser amount before the specified due date, interest is chargeable as per Rule 88B of CGST rules. The interest should be charged on the amount of GST due. Here is the formula for calculating the interest:

Scenario 3: Input Tax Credit Claimed Wrongly

In case a registered person wrongly claims and utilises Input Tax Credit in excess of what is available in the Electronic Credit Ledger (ECL), interest is chargeable under Rule 88B of the CGST Rules. The interest is chargeable on the excess amount claimed as ITC. The formula is as follows:

Interest Rates under Rule 88B of GST Rules

As per Rule 88B of CGST Rules, the interest to be charged for each of the scenarios mentioned above is:

Interest on Late Filing or Late Payment

In case of late filing of the GST Return and late or non-payment of the GST amount, the rate of interest prescribed in Section 50(1) of the CGST Act is to be used for calculating the interest amount. At present, it is 18% p.a. (subject to further amendments by the GST Council)

Interest on Wrongly Claimed Input Tax Credit

The interest rates prescribed under Section 50(3) of the CGST Act should be used to calculate the interest amount for wrongly claimed Input Tax Credit. At present, it is 24% p.a. (subject to further amendments by the GST Council)

Rounding Off of Interest

Section 170 of the CGST Act allows normal rounding off of tax, interest, penalties, etc. Hence, the interest liability under Rule 88B of GST can be rounded up or down to the nearest rupee.

Amendments to Rule 88B Recommended at the 53rd GST Council Meeting

The 53rd GST Council meeting recommended the following 2 amendments related to Rule 88B of CGST Rules:

Amendment 1: Interest Relief for late filing of return

The GST Council has recommended not charging any interest on the amount available in the Electronic Cash Ledger (ECL) on the due date of return filing. Thus, the interest rate u/s 50(1) should be charged only on the Debit amount in the ECL after deducting the available cash as of the due date of return.

Amendment 2: Waiver of Interest and Penalties

Interest and penalties for demand notices issued for non-payment of GST in 2017-18, 2018-19 and 2019-20 (excluding cases of fraud or willful misrepresentation) should be waived if the tax demanded is deposited before 31-03-2025.

Calculation of Interest Under Rule 88B with Example

Let’s try to understand how interest under Rule 88B of the CGST rules is calculated and how the recommended amendments at the 53rd GST Council meeting will change the amount of interest chargeable. Here’s an example:

A company self-assesses its GST liability for April 2024 to be Rs.10 lakhs (which is debited from the ECL). Now, the due date for filing GSTR-3B is 20th May 2024 in this case. Suppose:

• Company A filed the GSTR-3B on 3rd July 2024 (No. of Days Delayed = 44 days)
• The cash available in its Electronic Cash Ledger (ECL) on 20th May 2024 was Rs.5 lakhs

Calculation of Interest under Rule 88B of CGST Rules