The Indian government has established specific deadlines for Goods and Services Tax payments. These due dates vary depending on the taxpayer category. Failure to remit GST within the stipulated timeframe necessitates the payment of interest in addition to the outstanding GST amount for the period of delay.

When Is Interest Applied Under GST Regulations?

Under Section 50(1) of the Central Goods and Services Tax (CGST) Act, 2017, taxpayers incur interest on their GST liability in the following situations:

• Failure to pay GST within the prescribed period.
• Making a short payment for the GST due.

Interest on late GST payments is charged at an annual rate of 18% on the unpaid tax amount, or any portion thereof, for the duration of the delay.

Furthermore, an assessee who commits any of the following:

• Delays GST deposit.
• Makes a short payment of GST.
• Wrongly claims Input Tax Credit (ITC).
• Claims ITC in excess of their eligibility.
• Incorrectly reduces GST liability by more than their entitlement.

Will be required to pay interest at an annual rate of 24% on such excessive or wrongful claim, or on the difference in output tax liability due to wrongful reduction.

Interest begins to accrue from the day immediately following the original due date until the day the outstanding dues are settled.

What Is the Interest Rate for Delayed GST Payments?

A late payment of GST will incur interest at 18% per annum.

However, if authorities determine that an assessee has misrepresented their output tax liability in their GST return, a higher interest rate of 24% per annum will be applicable.

In addition to interest, penalties may also be imposed under GST for submitting erroneous returns, engaging in fraud, or making willful misstatements.

How Is Interest Calculated, With Examples?

Previously, interest on delayed tax payments was computed on a gross basis, meaning it was applied to the total tax amount without considering the Input Tax Credit.

A subsequent proviso was introduced through Central Tax Notification No. 16/2021 to alleviate this difficulty, clarifying that interest would now be applied to the net cash tax liability in cases of delayed GST payment.

Net cash liability is calculated as: Gross GST liability – Input Tax Credit.

However, a taxpayer facing proceedings for:

• Unpaid, short-paid, wrongly availed ITC, or wrongly generated refund for any reason other than fraud.
• Unpaid, short-paid tax, wrongly availed ITC, or wrongly generated refund specifically for tax evasion purposes.

Will still be liable to pay interest on their ‘Gross GST Liability’.

Example 1

ABC Ltd. was required to pay GST of INR 40 lakhs by June 20, 2022, but settled its tax liability on July 20, 2022.

The interest due for this delayed payment would be calculated as: Interest rate: 18% Days in default: 30 days Outstanding tax: INR 40 lakhs

The interest for the delayed GST payment amounts to INR 59,178 (40,00,000 * 18% * 30 / 365).

Example 2

ABC Ltd. had a tax liability of INR 20 lakhs and an ITC of INR 24 lakhs. Upon assessment, the officer discovered that INR 16 lakhs of the ITC claimed were not permissible under Section 17(5) of the CGST Act.

In this scenario, interest must be paid on INR 4 lakhs (the wrongfully availed ITC).

Interest on Delayed GST Refunds

The Indian Supreme Court has ruled that if there is an undue delay by the department in processing a GST refund, a 6% interest rate must be paid to the assessee.

This judgment followed an appeal by the Indian Government to the Supreme Court against a Gujarat High Court verdict, which had mandated the department to pay 9% interest on a refund delayed between 94 and 290 days.

Interest Application in the GST Portal

Details concerning late fees and interest for prior tax periods are automatically computed and pre-filled based on the values declared in the previous period’s return.

To adjust or input the auto-populated late fee and interest payable details, follow these steps:

Step 1

Click on the “Interest and Late fee” tile, specifically section 5.1, for the previous period.

Step 2

The taxpayer must select the declaration checkbox if they intend to declare their interest liability.

The system will then calculate and auto-populate interest values based on the tax-period-wise breakdown of tax liability from the prior return period. It will also calculate the late fee according to the number of days exceeding the filing due date for the previous return period.

The taxpayer should then click the ‘System Generated GSTR-3B’ button to review and download the pending liability breakup.

Note: Taxpayers can also view their GSTIN turnover details by clicking the ‘View Your Turnover’ button.

Step 3

The taxpayer must then click the ‘Confirm’ button to proceed with filing GSTR-3B.

Note: If any downward adjustments are made to the auto-populated interest values, these fields will be highlighted in red, accompanied by a warning message.

Taxpayers can compare the system-calculated amount with their entered amount by hovering over the respective box.

Step 4

The taxpayer will be redirected to the GSTR-3B landing page.

The tile for late fees and interest from the previous period in Form GSTR-3B will show the combined value of Integrated Tax, State/UT Tax, Central Tax, and Cess from the preceding period.

Note: Taxpayers are advised to click the ‘Save GSTR-3B’ button at the bottom to save their data in the GST system if they wish to exit and complete the filing later.

Advance Rulings Pertaining to Interest

In the case of Global United Shipping India Private Limited Vs. Assistant Commissioner of Customs (Refund) 2019, the High Court of Madras determined that interest liability would commence three months after the refund application date.

Conversely, in the Andhra Organics Limited vs. Commissioner of Central Tax 2018 case, the Ld. Commissioner (Appeals) used the receipt date of a final Tribunal order to calculate interest on the refund amount.

However, the Customs Excise and Service Tax Appellate Tribunal (CESTAT) deemed this approach contrary to provisions for interest on delayed refunds, which should instead be calculated from three months after the refund application date.