Section 50 of the CGST Act: Interest on Delayed Payment
The deadlines for paying the Goods and Services Tax have been set by the Indian government. Diverse taxpayer classes have various deadlines for paying GST. In addition to the GST owed for the postponed period, interest must be paid if the GST is not paid by the deadline. Taxpayers who postpone paying their tax obligations past the scheduled deadline are subject to interest payment obligations. It's important to remember that this interest is fundamentally compensatory in nature, acting as a way to make up for the payment that was delayed. It is not to be confused with a penalty, which is penal in nature. Section 50 of the CGST Act, 2017 stipulates the imposition of interest in situations where tax payments are not made within the allotted time limit. In this article, we will explain Section 50 of the CGST Act in detail.
Table of Content
What is Section 50 of the CGST Act?
Section 50 of the CGST Act addresses interest charges on overdue tax payments. Rule 88B, added subsequently by Central Tax notification number 14/2022, notifies how interest is computed on late payments of such taxes. Late GST payments would be subject to interest at the rate of 18% per annum. Interest at a rate of 24% per annum would be charged if the authorities discovered that the assessee had misrepresented the production tax liability on its GST return. Under GST, the assessee may be subject to a penalty with interest for filing an incorrect return, engaging in fraud, or making an intentional misrepresentation.
Section 50(1) of the Central Goods and Services Tax (CGST) Act of 2017 states that the following situations require the taxpayer to pay interest on their GST liability:
Fails to pay the GST within the stipulated time frame.
Makes a partial GST payment.
For the period on which the tax amount or any portion of it is still due, interest is paid at the rate of 18% per annum on the GST liability deposited late on the unpaid tax.
Additionally, an assessee who makes:
Delay in GST deposit
Makes short payment of GST
Claims ITC over their eligibility
Claims ITC wrongly
Reduces GST liability wrongly or beyond their eligibility
Would be required to pay interest at the rate of 24% per annum on the excessive or erroneous claim or reduction for the improperly used input tax credit or the difference in output tax liability. If the taxpayer fails to pay the GST liability by the deadline, interest is assessed and owed. The day after the due date till the day the dues are paid is the period for which the CGST Act is calculated.
Amount Subject to Interest Charges under Section 50 of the CGST Act
From a commercial standpoint, it can be a bad practice if the legislator requests tax payments and interest on the gross payments, that is, taxes paid using both the electronic cash ledger and the credit ledger. In order to combat this recovery mechanism, Section 50 stipulates that interest will only be charged on net taxes paid through an electronic cash ledger and not on gross taxes paid for the relevant tax periods when a registered person files a return as required by Section 39 of the CGST Act, 2017 after the deadline.
For instance, taxable individuals who are not non-residents or composition levy taxpayers must electronically file their GSTR-3 Return by the 20th day of the month that follows the tax period (the month in which the return is filed). If the aforementioned return is filed after the deadline, interest will only be charged on the amount paid by debiting the electronic cash ledger, which is the total output tax liability less the claimed input tax credit. Interest is not assessed if taxes are not paid using the cash ledger.
Rule 88B for Calculation of Interest on Delayed Tax Payment
If the registered person declares supplies made during a tax period in return for that period and the return is filed after the due date in accordance with section 39, unless the return is filed after the start of any proceedings under section 73 or section 74 for that period, the interest on tax payable for those supplies will be calculated on the portion of tax paid by debiting the electronic cash ledger for the period of delay in filing the return after the due date, at the rate that may be specified according to the sub-section (1) of section 50.
In every other situation where interest is due under subsection (1) of section 50, the interest will be computed on the amount of tax that has not been paid for the time between the date the tax was due and the date it is paid, at the rate that may be announced under subsection (1) of section 50.
If, in accordance with subsection (3) of section 50, interest is due on the amount of input tax credit that was wrongfully obtained and used, the interest will be calculated on the amount of credit for the period beginning on the date that the incorrectly obtained input tax credit was used until the date that the credit was reversed or the tax was paid on the amount, at the rate that may be declared under said subsection (3) of section 50.
Date of Utilisation of Wrongly Claimed ITC
When the balance in the electronic credit ledger falls below the amount of input tax credit that was wrongfully obtained, it will be assumed that the credit has been used. The extent of this use of the credit will be determined by the amount that the balance in the electronic credit ledger falls below the amount of input tax credit that was wrongfully obtained. According to Circular No. 192/04/2023 GST, the total ITC available in ECL under the heads of IGST, CGST, or SGST, taken together, is to be taken into consideration for the calculation of interest under this rule and for determining whether the balance in the ECL has fallen below the amount of wrongly availed ITC of IGST and its extent. This is because the amount of ITC available in ECL under any of the heads of IGST, CGST, or SGST can be used to pay the liability of IGST.
The date the return is due under section 39, or the date the return was actually filed, whichever comes first, if the balance in the electronic credit ledger is less than the amount of input tax credit that was incorrectly obtained as a result of paying taxes through the return; or the date the electronic credit ledger is debited when the balance in the electronic credit ledger is less than the amount of input tax credit that was incorrectly obtained, in all other cases.
Time Limit to Levy Interest
The clause does not provide a time limit for levying and issuing orders. Accordingly, interest that is due on overdue taxes may be requested and recouped at any moment if it hasn't been paid yet. Nonetheless, interest is levied as a consequential tax on the tax liability under the statute. Interest under this clause cannot be charged unless and until there is a delay in tax payment, a delay in the reversal of, or payment of, an incorrectly claimed and utilized ITC. Therefore, the amount of interest is always related to the principal amount of tax or the amount of ITC that is not paid, and this can be demanded and collected by using procedures like u/s 62, 63, 73, 74, etc. of the act. It can be argued that the time limit that applies to a claim for the principal amount should also apply to a claim for interest on that amount in light of the subsequent ruling.
Interest on Delay of GST Refund
The Indian Supreme Court ruled that the department must pay the assessee 6% interest if the GST refund procedure is delayed, as long as the delay is excessive. This decision follows the Indian Government's Supreme Court appeal against a Gujarat High Court decision that mandated the department pay 9% interest on the postponed return in cases where the delay was between 94 and 290 days.
Interest Levy in GST Portal
According to the numbers declared in the prior period, the information for interest and late fees for the previous tax period is computed and automatically updated. Follow these steps if the taxpayer wishes to update or change the automatically generated information regarding the late fee and interest due:
Step 1: Select the "Interest and Late fee" tile for the prior period by clicking the 5.1 button.
Step 2: If the taxpayer wants to declare the interest liability, they must tick the declaration box. The interest values would be computed and automatically updated by the system using the tax-period-wise breakdown of tax liability reported during the prior return period. Depending on how many days had passed since the filing deadline for the last return period, the system would also compute the late charge. To examine and download the pending liability breakdown, the taxpayer must next click the "System Generated GSTR-3B" button. By selecting the "View Your Turnover" button, the taxpayer can also see the GSTIN's turnover details.
Step 3: After that, the taxpayer must click the "Confirm" button to file GSTR-3B. A caution message will appear and the fields will be marked in red if the taxpayer has changed the auto-populated interest values downward. By hovering over the box, the taxpayer can see the difference between the amount submitted by the taxpayer and the amount estimated by the system.
Step 4: The taxpayer would be taken to the GSTR-3B landing page, where the total amount of Integrated Tax, State/UT Tax, Central Tax, and Cess for the prior period would be reflected in the late fee and interest for the previous period tile in Form GSTR-3B. If the taxpayer wishes to stop at this point and complete the filing at a later time, they are encouraged to select the "Save GSTR-3B" button at the bottom to save the data in the GST system.
Conclusion
In summary, Section 50's provision for interest charges under GST is essential to guaranteeing adherence to the law and prompt tax payment. Businesses are encouraged to follow the deadlines by the application of interest, which serves as a disincentive against late tax payments. This supports a just and equal taxation system in addition to helping the government maintain a consistent revenue source.
FAQ
Q1. When is interest on late payment of GST charged?
According to Section 50(1) read with Rule 88B of the CGST Act, 2017, if an individual is required to pay taxes but does not pay the government the tax or any portion of it within the allotted time, they must pay interest at the rate of 18% per annum on their own.
Q2. What is the interest on late payment of GST under Section 50?
Late GST payments would be subject to interest at the rate of 18% per annum. Interest at a rate of 24% per annum would be charged if the authorities discovered that the assessee had misrepresented the production tax liability on its GST return. Under GST, the assessee may be subject to a penalty with interest for filing an incorrect return, engaging in fraud, or making an intentional misrepresentation.
Q3. What is the period of interest?
According to Section 50(2) of the CGST Act of 2017, interest shall accrue between the date after the payment deadline and the actual tax payment date. The balance in the electronic cash ledger can be used to settle the interest liability, but not the amount in the electronic credit ledger. Interest should be paid freely, that is, without being demanded, in the event that taxes are paid after the due date.
Q4. Is interest chargeable when ITC is wrongly availed and utilized?
In accordance with Section 50(3) read with Rule 88B of the CGST Act, 2017, the registered person is required to pay interest at the rate of 18% on input tax credits that have been improperly obtained and used. The time frame for late interest payments will begin on the day that the incorrectly obtained input tax credit is used and end on the date that the credit is reversed or the tax is paid on the amount, at a rate of 18% per annum.
Q5. When is interest levied on total output tax liability?
Interest will be charged at the rate of 18% per annum on the total amount of output tax liability, that is, without deducting the claimed input tax credit, if the return is submitted after the start of any proceedings under sections 73 or 74 with regard to the specified period, or for any other reason that results in a belated return. The deductor is responsible for paying interest under Section 50 in addition to the amount of tax withheld if he fails to send the amount withheld as TDS to the government within the allotted time frame.
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