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Understanding and Responding to GST Notices for Delayed Interest Payments

Receiving GST notices can be a source of anxiety for taxpayers, especially when related to delayed interest payments or ineligible Input Tax Credit (ITC) claims. This article demystifies the process, explaining common reasons for such notices and providing a detailed, step-by-step guide on how to respond through the GST common portal using Form DRC-03. It also highlights crucial preventative measures, such as timely return filing and adherence to ITC claiming deadlines, to help taxpayers avoid future departmental communications.

📖 3 min read read🏷️ GST Compliance

Receiving a notice from tax authorities can cause concern for taxpayers. Nevertheless, the user-friendly common portal streamlines the process of addressing these communications. This article outlines the procedure for handling specific types of GST notices.

Department-Issued Notices

A common type of communication from the tax department is a request for interest payment due to delays. Another frequent notice pertains to GSTR-3B data, specifically concerning Section 16(4) of the CGST Act, 2017.

Causes for Receiving Specific Notices

Several factors can lead to the issuance of these notices. These include the submission of a GST return beyond its stipulated deadline for any given tax period. Additionally, notices may arise if Input Tax Credit (ITC) is claimed for a document after the designated time limit has passed. The deadline for claiming ITC on an invoice is either the due date for the September return of the subsequent financial year or the date of filing the relevant annual return, whichever comes earlier.

How to Respond to These Notices

The initial notice generally serves as a reminder for interest payment as per Section 50 of the CGST Act. Taxpayers can disregard this notice if the payment has already been completed. The subsequent notice specifically addresses instances where ITC has been claimed after its prescribed eligibility period has lapsed.

In response to such notices, it is essential to settle any applicable interest for late tax payments. For notices concerning ineligible ITC, the credit must be reversed, and the equivalent tax amount, along with accrued interest, must be paid.

The following procedure can be adopted:

  1. Access the GST common portal using your login credentials.
  2. Navigate to Services > User Services > My Applications.
  3. Choose ‘Intimation of Voluntary Payment – DRC-03’ and initiate a ‘New Application’. Be aware that the draft application is only retained for 15 days before system deletion.
  4. As these notices typically lack SCN numbers, select ‘Voluntary’ under ‘Cause of payment’.
  5. Specify the appropriate section number.
  6. Input the ‘Financial year’ along with ‘From’ and ‘To’ dates, corresponding to the tax period requiring payment.
  7. Compute and input all payment specifics, including tax, interest, and penalties.
  8. A challan will be generated with the entered amounts. Funds in your electronic cash ledger or electronic credit ledger can offset the tax liability. Any remaining balance can be paid in cash. Importantly, interest and penalty amounts must be paid exclusively via the electronic cash ledger.
  9. Mark the verification checkbox, choose the authorized signatory's name, and click ‘Create Challan’.
  10. Follow the payment steps according to your chosen payment method. The draft Form GST DRC-03 statement will become available for download.
  11. Review the details, check the verification box, select the authorized signatory, and click ‘File’. A confirmation message will appear, offering options to file with DSC or EVC. Choose the applicable method. A success message, including the ARN, will then be displayed.

Measures to Prevent Future Notices

To prevent receiving the initial type of notice, consistently file all returns punctually and before their due dates, ensuring all required details are accurately reported. Furthermore, it is crucial to claim ITC promptly within the timelines specified by the GST Act. Always verify that all ITC claims adhere strictly to GST law provisions.

Frequently Asked Questions

What is the standard interest rate for delayed GST payments in India?
For delayed payment of GST, interest is typically charged at an annual rate of 18% on the outstanding tax liability from the due date until the actual payment date.
Can interest be waived on delayed GST payments under specific circumstances?
Generally, interest on delayed GST payments cannot be waived as it is a mandatory compensatory levy. However, there have been some past instances of conditional waivers or reductions announced by the government, primarily for smaller taxpayers or during specific crises.
What is the significance of the electronic cash ledger and electronic credit ledger in GST?
The electronic cash ledger holds cash deposits made by taxpayers, used for paying any GST liability (tax, interest, penalty). The electronic credit ledger stores Input Tax Credit (ITC) balance, which can only be utilized to offset output tax liability (CGST, SGST, IGST).
How does one rectify an incorrect ITC claim in GST?
An incorrect ITC claim in GST must be rectified by reversing the ineligible credit, typically by declaring it in the subsequent GSTR-3B return. The corresponding tax amount, along with applicable interest, must then be paid.
What are the consequences of repeatedly failing to respond to GST notices?
Repeated failure to respond to GST notices can lead to severe consequences, including tax demand orders, imposition of higher penalties, initiation of recovery proceedings, and even prosecution under the GST law.