GST regulations mandate taxpayers to pay interest for delayed GST liability payments. It is the taxpayer's duty to accurately compute this interest to comply with legal requirements. To assist with this, the GSTR-3B interest calculator functionality has been introduced.

What is the Interest Calculator in GSTR-3B Functionality?

The GST Network (GSTN) has continuously enhanced the indirect tax regime's IT infrastructure. Among these improvements is the interest calculator, designed to help taxpayers compute interest on overdue tax payments. This new feature automatically calculates the interest owed on late tax payments based on the figures submitted in GSTR-3B for a specific tax period. The calculated interest pertains to the delayed payment of net output tax liability, specifically the amount settled via the electronic cash ledger. Taxpayers can verify and settle the accurate interest liability as required by law. This computed interest will then appear in the GSTR-3B for the subsequent period.

Background for Auto-Population of System-Computed Interest

Section 50 of the CGST Act, 2017, stipulates that interest will be levied on late GST payments. This interest applies to the net GST liability after deducting eligible input tax credit from the total output tax, meaning it's calculated on the amount paid in cash. The interest calculation commences the day after the filing due date and continues until the tax payment date. The Act specifies an interest rate, not exceeding 18% per annum, as notified by the Government. Currently, the rate for delayed tax liability payments is 18% annually. Previously, taxpayers were responsible for self-assessing and paying their interest liabilities, which often led to difficulties in accurate estimation and, in some cases, evasion, as computation relied solely on self-assessment.

Changes to Interest Calculation on the GST Portal

Interest liabilities for current tax period supplies are now solely calculated on tax paid through the electronic cash ledger. However, interest for previous tax liabilities reported in a particular GSTR-3B period will be computed on the entire outstanding amount. The GST portal has implemented the following enhancements to ensure proper discharge of GST liabilities:

Introduction of Tax Liability Breakup

This feature allows taxpayers to provide a tax-period-wise breakdown of their net GST liability payments. A new button, “Tax Liability Breakup, As Applicable,” is available in Form GSTR-3B, enabling taxpayers to specify this breakdown. This button becomes active only after the liability for the relevant periods has been paid. If the GST liability for a specific tax period includes obligations from prior periods, this feature allows for the accurate allocation of the total liability to the respective periods. Utilizing this feature is crucial, as failing to declare a period-wise tax liability breakup will result in incorrect interest calculations, with interest being computed on the entire tax liability as if it belongs to the current period.

Interest Calculation

Instead of manual entry, the new interest calculator automatically computes and displays the interest in the return. Interest is determined for each tax period based on the declared tax liability breakdown from the previous return. The formula for calculating interest on late tax payments for each period is: Interest Liability = Tax liability × (Number of days from due date till actual date of filing / Number of days in a year) × Interest rate Taxpayers can review the auto-computed interest and confirm the total amount. While they can modify the calculated interest and proceed with payment, a warning message will appear if the interest values are edited downwards. Despite this warning, the system permits taxpayers to continue with filing their return. This interest calculator feature does not affect taxpayers who have consistently made timely tax payments in previous periods.

Example of How Interest Calculation in GSTR-3B Works

Here's an illustration of the GSTR-3B interest calculation process:

• The taxpayer declares output tax liabilities and eligible input tax credit in GSTR-3B, including any liabilities from past periods. After making the GST liability payment, the “Tax Liability Breakup, As Applicable” button becomes available.
• Taxpayers can use this button to declare the period-wise breakdown of the GST liability paid, categorizing it by head. The sum of all period-wise breakdowns must match the total GST liability paid in that return.
• Once the breakdown is entered and saved, the taxpayer can proceed with filing the return.
• Upon filing, any applicable late fees and interest on delayed tax payments will automatically appear in the subsequent period's return.
• Interest is calculated in accordance with Section 50 of the CGST Act, 2017. The auto-calculated interest will be displayed in Table 5.1 of GSTR-3B, under “Interest and late fee for the previous tax period.” The interest for each tax period will be totaled and reflected in the corresponding cells.
• Taxpayers have the option to confirm or modify the auto-computed interest values. However, if the interest amount is reduced, the system will display a warning message, and the interest cell will turn red.
• Despite this warning, taxpayers can still proceed to file their return.