Recently, by enacting the provision to section 50(1) and making it effective prospectively, the matter of interest on delayed payment of GST again gained the limelight. However, some illumination has been done vide the press release dated 26th August 2020.
The current article tries to explain the hierarchy of actions taken in the matter, analysis the current position along with applicable formula and illustration.
Hierarchy of actions taken in the matter
Since the beginning of Goods and Service Tax, i.e. 1st July 2017, interest payable on delayed payment of GST has always been a subject matter of argument. Time-to-time action taken by the Government, in the matter, is tabulated hereunder-
| Insertion of the proviso to section 50(1) of the Central Goods and Services Tax Act, 2017. | · The proviso was introduced vide Finance (No. 2) Act 2019 dated 1st August 2019. · The proviso stated that interest on delayed payment should be levied on that portion of the tax that is paid by debiting ‘Electronic Cash Ledger’ i.e. net GST liability. · The effective date of the amendment was pending to be notified. |
| CBIC twitter in the matter. | · CBIC tweeted on 15th February 2020 via an official twitter account. · As per the tweet, interest on delayed payment of GST has to be collected on a Net Basis. |
| 39th GST Council Meeting | · 39th GST Council Meeting was held on 14th March 2020. · Vide the press release it was stated that interest on delayed payment of GST is to be charged on net cash tax liability. It was also stated that the amendment should be done retrospectively. |
| Implementation of the provison to section 50(1) of the Central Goods and Services Tax Act, 2017 | · Vide notification no. 63/2020- Central Tax dated 25th August 2020 the provison to section 50(1) was made effective. · However, as per the notification, the provisions will be effective prospectively from 1st September 2020. |
| Subsequent press release | · Vide the press release dated 26th August 2020, the Central Board of Indirect Taxes and Customs come up with the clarification in the matter. · As per the clarification, the proviso to section 50(1) is given prospective effect due to certain technical limitations. · Further, it is stated that no recoveries shall be made for the past periods. |
Analyzing the up to date position in the matter
Following conclusion can be derived at after going through the above hierarchy of actions-
- The proviso to section 50(1) clearly states that in case the return is filed belatedly, interest shall be payable only on the tax liability paid in cash i.e. net tax liability.
- The proviso is made effective from 1st September 2020.
- As per the latest press release, past period recovery is prohibited. Which means that the interest shall be payable on net tax liability and the same shall be effective from 1st July 2017.
Applicable formula and Illustrations thereon
In order to calculate the interest on delay payment of GST, one needs to apply the following formulas-
- The formula for calculating ‘net tax liability’-
Net tax liability = Total tax payable on outward supply – Input Tax Credit on inward supply.
- The formula for calculating ‘interest on delay payment of GST’-
Interest payable = Net tax liability * interest rate * No. of days payment delayed/365.
Let us understand the above formulas with the help of an illustration-
Suppose, INR 1,00,000 is payable by the taxpayer as a total tax on Outward supply for the month of January 2020. INR 20,000 is available as an input tax credit to the taxpayer. There is a delay of 10 days in payment of GST.
Net Tax Liability = INR 1,00,000 – INR 20,000 = INR 80,000.
Interest payable = INR 80,000*18%*10/365 = INR 395.