Interest on Delayed Payment of Tax – Section 50 of GST

Timely payment of GST is crucial for businesses to avoid penalties and additional costs. Section 50 of theCGST Act, 2017, deals with interest liability on delayed payment of tax. This provision ensures compliance and discourages delays in tax payments.

Key Provisions of Section 50

Section 50 lays down the interest liability for delayed payment of GST and wrongful utilization of Input Tax Credit (ITC). Below are the major aspects of this section:

1. Interest on Late Payment of GST

According to Section 50(1):

• A taxpayer failing to pay GST within the prescribed period is liable to pay interest.

• The interest rate shall not exceed 18% per annum.

• The government determines the exact interest rate based on recommendations from the GST Council.

• Interest is payable on the tax amount that remains unpaid for the delayed period.

2. Interest on Late Filing of GST Returns

• If a taxpayer files their GST return late under Section 39 of the CGST Act, interest is levied only on the tax paid through the electronic cash ledger.

• However, if the return is filed after the initiation of proceedings under Section 73 or 74 or Section 74A, interest is payable on the full tax amount.

3. Interest on Wrongful Availment and Utilization of ITC

• As per Section 50(3), if a registered person wrongly avails and utilizes ITC, they must pay interest.

• The interest rate for such cases shall not exceed 24% per annum.

• The calculation method for interest is prescribed by rules notified under the CGST Act.

Effective Dates and Amendments

• 1st July 2017: Section 50 was enforced with the implementation of GST.

• 1st June 2021: Amendment through Finance Act 2021 clarified that interest on late GST payment applies only to tax paid via cash ledger, not ITC.

• 5th July 2022: Finance Act 2022 revised the provisions related to interest on ITC utilization.

• 16th August 2024: Finance Act 2024 further inserted clarifications regarding the application of interest.

Calculation of Interest

Interest is calculated from the day following the due date of tax payment. The formula for interest computation is:

Interest = Tax amount X Interest rate X (Days of delay/365)

Practical Implications for Businesses

1. Timely GST Payment: Businesses should ensure timely tax payment to avoid interest liability.

2. Accurate ITC Claims: Businesses must correctly avail and utilize ITC to prevent additional interest costs.

3. Proper Record-Keeping: Maintaining accurate tax records can help in avoiding disputes related to delayed payments.

Conclusion

Section 50 of the CGST Act serves as a deterrent against delayed tax payments and wrongful ITC utilization. Businesses must ensure compliance by making timely payments and correctly availing ITC to avoid interest liabilities. Staying updated with GST provisions and amendments can help taxpayers effectively manage their GST obligations.