Interest Rates under GST
Government implemented GST by consolidating various State & Central taxes, these taxes has their different laws as compare to other. Every state law has various types of returns, due dates and interest & penalty on account of defaults for late payment & filing the returns. After implementation of GST, all states are bind with single law and have to follow uniform tax regulations. Through GST government tried to digitalized entire tax system to make it user friendly and easily accessible for everyone. As the system is automated, it will be calculating interest and late fee in case of any default. In this article we will understand Interest to be paid by taxpayer for non-compliance under Automated GST regime.
If any assesse “fails to pay the taxes” to government or pays the taxes late, then assesses has to pay the interest as prescribed under different section of GST Acts. Similarly if assesse “claimed excess input credit” or “claimed input credit without their eligibility” then also assesse will be liable for interest payment. So basically interest is an additional burden on taxpayer to make him disciplined.
Lets understand different scenario where interest liability can arrive along with applicable rate on interest.
There can be multiple reasons where liability for payment of interest can be arise, like defaults in payment of output tax, excess credit availed & reversal of credit etc. Under GST there are 2 rates have been prescribed, under section 50(1), which deals with late payment of out put tax, where rate will be 18% and under section 50(3) which deals with excess or undue input credit then rate will be 24%.
a) Situation covered under section 50(1) of CGST Act:
Case 1) Output Tax determined correctly but paid after due date:
If assessee reported their correct output tax liability in return but fails to pay on or before date, then taxpayer will be liable to pay interest at the rate of 18% per annum. Such period of interest calculation will start from the next date of due date and will end on the date of payment.
Example: Assesse reported tax liability in his return of INR 1,00,000 for the month of July 2017 for which due date was 20thAug 2017 but assesse made the payment of INR 1,00,000 on 1 Sep 2018, here assesse will be liable for interest for 12 days from 21 Aug to 1 Sep @18% per annum.
Case 2) Output tax determined wrongly
If the assessee has short reported their output tax liability in return then he will be liable for interest @ 18%, whenever he or any officer finds that, assesse has short paid tax previously then he has to pay taxes along with interest of 18% per annum.
Example: Reason for such under reporting of liability can be that assessee had forgot to incorporate one invoice in their return having tax liability of 2,00,000 and paid the tax liability as per return only, which is not correct liability, because he has to pay the tax on the basis of actual information which must includes tax liability of 2,00,000. In these cases, where taxpayer under reported their output tax liability then they has to pay interest @ 18% per annum. Basis for calculation of days will remain same as mentioned in above example.
Case 3) Input Credit wrongly availed
Whenever assesse availed Input credit wrongly then he has to pay interest @ 18% per annum from the date of such excess claim to the date of payment. Reasons for such excess claim can be Invoices received for having input credit of 200 (CGST+SGST) but assesse claimed 400 (200+200) input credit.
Example: Assesse claimed input credit on food and beverage services whereas input credit on such services is not allowed as per section 17(5) of CGST act.In that case assesse will be liable to pay interest @ 18% per annum from the date of input credit till the date of payment.
b) Situation covered under section 50(3) of CGST Act i.e. excess or undue Claim of Input Credit:
Whenever assesse availed excess Input credit on account of mismatch with actual inward supplies then he has to pay interest @ 24% per annum from the date of such excess claim to the date of payment.
Reasons for such excess claim can be that taxpayer didn’t receive the inward supplies but claimed input credit or supplies received in later months but claimed credit in current which is again will mis-match with vendors information for same month.
Higher rate of interest is prescribed under that section is to avoid fake input credit without receiving actual supplies and to make assesseee disciplined to report their correct inwards supplies, which is match with vendors records.
Hence whenever input credit doesn’t match with information submitted with vendor then higher rate of 24% per annum will be applicable.
Example:If recipient of supplies avail the input credit on the basis of actual supplies received but the supplier didn’t reported such invoices in their GSTR 1, which results excess claim of input in the books of recipient, this case would be the case of Section 50(3), hence recipient will be liable for interest @24% per annum.
Other scenario where interest liability can arise and corresponding interest rate
- Reversal of input tax credit in the case of non-payment of consideration to supplier within 180 days from the date of invoices, Interest rate will be 18% per annum, the Interest period will start from the date of availing credit on such supplies till the date when the amount added to the output tax liability
- Inputs or capital goods that are not returned to the principal within1 year or 3 years respectively from the date of received by the Job worker, Interest rate will be 18% per annum, the Interest period will startfrom the date of delivery challan issued to the Job worker by the Principal till the date of reporting in output liability
- Any other defaults for short payment/non payment or erroneously refunded, Interest rate will be 18% per annum for default period.
- If assesse was required to pay IGST but wrongly paid CGST/SGST or vise versa then it will not be treated as default, hence interest liability will not arise.