Businesses must timely file their GST returns and pay their Tax liabilities under the GST regime. Taxpayers and companies are required to pay interest on the amount due if the GST liability is not paid on time. Before paying their GST interest liability, one must take into account a number of things. In this article, we will discuss 9 things that businesses need to check before paying their GST interest liability to ensure that they are not overpaying or underpaying their tax dues.
Interest under GST as per CGST Act 2017’s section 50(1)
The Goods and Services Tax (GST Tax) payment deadlines have been set forth by the Indian government. Different taxpayer classes have distinct GST payment due dates. When GST is not paid by the deadline, interest accumulating during the delay period must also be paid.
When is Interest levied under GST?
The Central Goods and Services Tax (CGST) Act 2017’s section 50(1) mandates that the taxpayer pays interest on any GST due in the following circumstances:
- Fails to make GST payments within the given time-frame
- Makes short payment for the GST
- Delays to make GST deposits
- shortens the GST payment
- Claims incorrect ITC
- Reduces GST liability incorrectly or more than what was allowed by ITC claims that exceeds eligibility
What is the interest rate for late payment of GST?
The GST Penalty Regulations provide that taxpayers who don’t pay their taxes on time will be charged interest at a rate of 18% annually. For the days following the due date, interest will be assessed.
Interest at the rate of 24% per year would be payable if the authorities determine that the taxpayer misrepresented its output tax liability in its GST return. For incorrectly filing a return, committing fraud, or making a willful false statement, the person may be fined under the GST, plus interest.
9 Things to check before paying the GST interest liability
- Verify whether the deadline for submitting the GST Return has been extended: The CBIC has frequently postponed or extended the deadline for filing returns for various months due to a variety of factors, such as the COVID pandemic and GST being a new law or some other regional circumstances.
- Verify the interest rate that was stated in the letter: According to Section 50(1) of the CGST Act 2017, the ideal rate of interest to be imposed is 18%, but during the pandemic, the CBIC has offered a waiver by lowering the rate of interest for the given period. So, check the interest levied on you in case you receive a letter for GST liability payment before making the final payment.
- Verify the date on which the returns are being filed: Sometimes there could be an error from the department’s side as well regarding the dates. Ensure that the dates are correctly mentioned and if you have filed the returns of the required date or not.
- Determine if the interest is sought on the Gross Liability or on the Net Liability: As stated in section 50(1)’s per proviso, interest is only required to be paid on the cash component that results after deducting the ITC from the total output tax liability. So ensure that the letter that you have received from the department is demanding interest for net liability and not gross liability.
- Verify whether you have made any CGST or SGST payments while having a balance in either’s electronic credit ledger: Often times, despite having a balance in the CGST in the electronic credit ledger, the taxpayer pays tax in SGST in cash because of the erroneous offset. If this is the case, it is preferable to write and explain the circumstance as well as the statutory provision that led to the delay. The department may excuse the delay if your reasons are valid.
- Check if the authorities are demanding interests on claiming irregular Trans Credit: Up until the Trans Credit is used, there is no interest to be paid on the claim.
- Verify whether the interest is based on the number of days the delay occurred or the entire term: As recommended by the CESTAT, Chennai Bench ruling, interest should only be calculated daily and not on a monthly basis.
- Verify whether Rule 88B of the CGST Regulations 2017 is used to calculate the interest: It is important to check if the rules mentioned in the letter are correct and the interest calculated is as per the GST rules.
- Inspect the portal to see if any technical issues are the cause of the delay: The Hon’ble Supreme Court has ruled in several decisions that where a taxpayer has paid taxes on time but was unable to file a return because of technological issues with the portal, no interest is charged.
One can refer case law “Narsingh Ispat Limited Vs Union of India (Jharkhand High Court)” where it is held that GST interest liability U/s. 50 cannot be raised without initiating any adjudication proceeding if assesses raises dispute.
The Jharkhand High Court has held that interest liability under Section 50 of the Central Goods and Services Tax Act, 2017 is automatic. It is computation, and demand can be raised only after the adjudication proceedings are complete. This case became known after a petitioner who had filed GSTR3B approached the High Court after a letter was sent to the business entity demanding payment of interest on the grounds of delay in filing of GSTR-3B return for the months of February and March 2018.
The Jharkhand High Court has quashed the letter sent by GST authorities and held that even though the liability of interest is automatic, the same is required to be adjudicated in the event of a dispute. By initiation of adjudication proceedings under Section 73 or 74 of the CGST Act, the amount of interest cannot be termed as an amount payable under the CGST Act unless adjudication is completed by the proper authorities.
In conclusion, paying the correct amount of GST interest liability is crucial for businesses to comply with the GST laws and avoid penalties. By following the 9 things that we have discussed in this article, businesses can ensure that they are paying the correct amount of GST interest liability and avoid any unnecessary financial burdens. It is important for businesses to keep up-to-date with the latest GST regulations and seek professional advice if they are unsure about any aspect of their GST compliance.