Introduction
According to Section 50(1) read with Rule 88B of the CGST Act 2017, anyone liable to pay tax but failing to do so within the prescribed period must pay interest at 18% per annum for the period the tax remains unpaid.
Amount Subject to Interest Charges
Tax authorities typically charge interest on gross payments, which include taxes paid through both the electronic cash ledger and credit ledger. However, Section 50’s proviso specifies that when taxpayers pay taxes late through a return under Section 39, interest applies only to the net taxes paid through the electronic cash ledger, not on gross taxes.
For example, taxable persons (excluding non-resident and composition levy taxpayers) must file GSTR-3 Return electronically every month by the 20th of the following month. Filing after the due date incurs interest on the delayed payment only on the amount paid via the electronic cash ledger.
Interest on Total Output Tax Liability
If taxpayers furnish a return after proceedings under Section 73 or 74, or for any other reason leading to a belated return, they must pay interest on the total output tax liability without setting off the input tax credit claimed, at the rate of 18% per annum.
Period of Interest
According to Section 50(2) of the CGST Act 2017, the interest period starts from the day following the due date of payment until the actual payment date. This interest can be settled by adjusting the balance in the electronic cash ledger but not in the electronic credit ledger. Payment of interest should be made voluntarily, even without a demand.
Interest on Wrong Availment and Utilization of ITC
As per Section 50(3) read with Rule 88B. If a registered person wrongly avails and utilizes the input tax credit (ITC), they shall pay interest on the wrongly availed ITC at 18% per annum. The interest period starts from the date of utilization until the date of reversal or payment of tax.
Date of Utilization and Extent
The date of utilization of wrongly availed ITC is when the balance in the electronic credit ledger falls below the amount of wrongly availed ITC.
Example
On 1/11/2023, Mr. X had total ITC of Rs. 100,000, out of which Rs. 40,000 was wrongly availed. He utilized Rs. 70,000 while filing GSTR 3B on 15/11/2023. Later, he realized the mistake and wanted to reverse the Rs. 40,000. The interest payable would be on the balance in the electronic credit ledger (Rs. 30,000) falling short of the wrongly availed ITC (Rs. 40,000), which is Rs. 10,000. The interest for 22 days (15/11/2023 to 7/12/2023) would be Rs. 108.5 (10,000 * 22/365 * 18%).
Conclusion
The provision of interest charged under GST. As per Section 50, serves as a crucial component in ensuring compliance and timely tax payments. This promotes a fair and equitable taxation system while maintaining a steady revenue stream for the government.
Key Takeaways
- Interest is charged at 18% per annum for late tax payments under the CGST Act 2017.
- Interest applies only to net taxes paid through the electronic cash ledger.
- Wrong availment and utilization of ITC incur interest charges.
- Interest ensures timely tax compliance, benefiting both businesses and the government.
- Compliance with tax regulations not only ensures smoother operations but also fosters a transparent and accountable financial environment.
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