WFYI logo

Understanding CGST Rule 88B: Interest Calculation for Delayed GST Remittances

This article clarifies CGST Rule 88B, which governs interest calculations for delayed GST payments, late return filings, and incorrect Input Tax Credit claims. It details various scenarios and applicable interest rates, highlighting key amendments proposed in the 53rd GST Council meeting. These amendments offer relief for late filers by adjusting interest computation based on Electronic Cash Ledger balances and suggest a waiver for specific past penalties. An illustrative example demonstrates the practical impact of these changes on interest liability.

📖 4 min read read🏷️ CGST Rule 88B

Central Goods and Services Tax (CGST) Rule 88B outlines the methodology for computing interest on tardy Goods and Services Tax (GST) payments. The 53rd GST Council meeting, convened on June 22, 2024, proposed significant revisions to Rule 88B and its corresponding interest calculation framework. This article explores the interest provisions under GST Rule 88B, incorporating these recent modifications.

What is CGST Rule 88B?

Under the CGST Act, non-compliance with prescribed GST regulations leads to interest and penalties. While Section 50 of the CGST Act defines applicable interest rates, Rule 88B of the CGST rules establishes the framework for interest charges in specific scenarios. These include:

  • Failing to submit GST returns by the designated deadline (excluding instances where returns are filed post-proceedings initiated under Section 73* or 74**).
  • Delaying or defaulting on GST amount payments.
  • Improperly claiming and utilizing excess Input Tax Credit.

*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.

When Does CGST Rule 88B Apply?

Rule 88B of the GST rules specifies interest charges in the following situations:

Scenario 1: Delayed Submission of GST Returns (with recent amendment proposal)

All registered individuals are required to file monthly GST returns by the deadlines outlined in Section 39 of the CGST Act. According to Rule 88B, interest is typically levied on the total sum debited from the Electronic Cash Ledger for tax payments when a return is filed late. However, the GST Council has proposed an amendment to exclude interest on the amount already present and debited in the ledger by the due date. The interest calculation formula is:

Before Amendment:
Interest Amount = (Debit to Electronic Cash Ledger * Interest Rate * Number of Days Delayed) / 365
Number of Days Delayed = Actual Filing Date - Due Date of Return Filing

After Amendment:
Interest Amount = (Net Debit to Electronic Cash Ledger * Interest Rate * Number of Days Delayed) / 365
Net Debit to ECL = Debit to ECL - Cash available in ECL on the due date

Scenario 2: Postponed GST Payment

If a registered taxpayer under the CGST Act fails to pay the required tax amount by the due date or remits a lower sum, interest is applicable under CGST Rule 88B. This interest is computed on the outstanding GST amount. The formula for calculating this interest is:

Interest Amount = (GST Amount Due * Interest Rate * Number of Days Delayed) / 365
Number of Days Delayed = Actual Date of Payment - Due Date of Payment

Scenario 3: Incorrect Input Tax Credit Claims

When a registered person mistakenly claims and uses Input Tax Credit (ITC) exceeding the balance available in their Electronic Credit Ledger (ECL), interest becomes payable under Rule 88B of the CGST Rules. The interest is charged on this erroneously claimed ITC. The formula is as follows:

Interest Amount = (Excess ITC Claimed & Utilized * Interest Rate * Number of Days) / 365
Number of Days = Date of Reversal - Date of Wrong Utilization
Excess ITC Claimed & Utilized = ITC Availed - Balance in the Electronic Credit Ledger

Interest Rates Under GST Rule 88B

CGST Rule 88B specifies distinct interest rates for the aforementioned scenarios:

Interest for Delayed Filing or Payment

For late submission of GST returns or delayed/non-payment of the GST amount, the interest rate outlined in Section 50(1) of the CGST Act is applied. Currently, this rate stands at 18% per annum, though it is subject to future revisions by the GST Council.

Interest on Improperly Claimed Input Tax Credit

For instances of wrongly claimed Input Tax Credit, the interest rate prescribed under Section 50(3) of the CGST Act is applicable. Presently, this rate is 24% per annum, also subject to potential changes by the GST Council.

Interest Rounding

Provisions in Section 170 of the CGST Act permit the standard rounding off of tax, interest, and penalties. Consequently, any interest liability under GST Rule 88B can be rounded to the nearest rupee.

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

The 53rd GST Council meeting put forth two key amendments concerning CGST Rule 88B:

Amendment 1: Interest Concession for Late Return Filing

The GST Council proposed exempting interest charges on any funds held within the Electronic Cash Ledger (ECL) as of the return filing due date. This implies that the interest rate under Section 50(1) would only apply to the net debit amount in the ECL, after accounting for available cash by the due date.

Amendment 2: Interest and Penalty Remission

Interest and penalties associated with demand notices for GST non-payment during the financial years 2017-18, 2018-19, and 2019-20 (excluding instances involving fraud or deliberate misrepresentation) are recommended for waiver, provided the demanded tax is paid by March 31, 2025.

Illustrative Interest Calculation Under Rule 88B

To illustrate the application of CGST Rule 88B interest calculation and the impact of the proposed amendments from the 53rd GST Council meeting, consider the following example: A business determines its GST liability for April 2024 as ₹10 lakhs, which is debited from its Electronic Cash Ledger (ECL). The deadline for GSTR-3B submission is May 20, 2024.

  • The company submitted its GSTR-3B on July 3, 2024, resulting in a delay of 44 days.
  • On May 20, 2024, the company's Electronic Cash Ledger (ECL) held ₹5 lakhs in cash.

Detailed Interest Calculation Under CGST Rule 88B

Here's how interest is calculated under CGST Rule 88B, both before and after the proposed amendment:

Calculation Prior to Amendment

Interest Amount = (Debit to Electronic Cash Ledger * Interest Rate * Number of Days Delayed) / 365
Interest Amount = (₹10,00,000 * 18% * 44) / 365 = ₹21,699

Calculation Post-Amendment

Interest Amount = (Net Debit to Electronic Cash Ledger * Interest Rate * Number of Days Delayed) / 365
Net Debit to ECL = ₹10,00,000 - ₹5,00,000 = ₹5,00,000
Interest Amount = (₹5,00,000 * 18% * 44) / 365 = ₹10,849

Frequently Asked Questions

What happens if I file my GSTR-3B after the due date?
If you file your GSTR-3B after the due date, interest is typically charged on the amount of tax payable from the due date until the actual filing date, as per GST laws.
Is interest charged on both the Electronic Cash Ledger and Electronic Credit Ledger balances for late payments?
Interest is primarily charged on the net tax liability paid through the Electronic Cash Ledger. For wrongly utilized Input Tax Credit from the Electronic Credit Ledger, a separate interest rate applies.
What is the current interest rate for delayed GST payments in India?
As per Section 50(1) of the CGST Act, the current interest rate for delayed GST payments and late filing of returns is generally 18% per annum, subject to any changes by the GST Council.
Can I get a waiver for interest on late GST payments?
While specific waivers might be announced by the GST Council for particular periods or circumstances (like the one proposed in the 53rd GST Council meeting for past years), generally, interest on late GST payments is mandatory.
How is the number of days for interest calculation determined for late GST payment?
The number of days for interest calculation starts from the day immediately following the due date of payment or return filing and continues until the actual date of payment or filing.