Interest on Delayed Payment (Sec 50)

Every person who is liable to pay tax in accordance with the provisions of this Act or the rules made thereunder, but fails to pay the tax or any part thereof to the Government within the period prescribed, shall for the period for which the tax or any part thereof remains unpaid, pay, on his own, interest at such rate, not exceeding eighteen per cent., as may be notified by the Government on the recommendations of the Council.

Provided that the interest on tax payable in respect of supplies made during a tax period and declared in the return for the said period furnished after the due date in accordance with the provisions of section 39, except where such return is furnished after commencement of any proceedings under section 73 or section 74 in respect of the said period, shall be levied on that portion of the tax that is paid by debiting the electronic cash ledger.

The interest under sub-section (1) shall be calculated, in such manner as may be prescribed, from the day succeeding the day on which such tax was due to be paid.

A taxable person who makes an undue or excess claim of input tax credit under sub-section (10) of section 42 or undue or excess reduction in output tax liability under sub-section (10) of section 43, shall pay interest on such undue or excess claim or on such undue or excess reduction, as the case may be, at such rate not exceeding twenty-four per cent., as may be notified by the Government on the recommendations of the Council.

Amendment by Finance Bill, 2021

The Union Budget for financial year 2021-22 has been laid in Parliament on 1st February, 2021.

It proposes to amend section 50(1) by way of clause 103. Accordingly,

• Finance Bill, 2021 has proposed to substitute proviso to section 50(1) so as to charge interest on net cash liability.
• Section 50 of CGST Act, 2017 provides for interest on delayed payment of tax.
• Thus, interest shall be payable on that portion of the tax which is paid by debiting the electronic cash ledger.
• This will be effective retrospectively w.e.f. 01.07.2017 implying that Department will have to forego such demands raised till now and interest will only be payable on tax liability payable in cash.

Other Considerations:

The Act with respect to the filing of the returns as contained u/s 39 of the CGST Act, 2017 merely link the due date for payment of tax with the due date for the filing of the return but does not provide that the return can be filed only after paying the entire tax. Attention is also draw to the definition of “valid return” u/s 2(117) of the CGST Act, 2017 which considers a return on which entire tax has been paid as a valid return (which would have been considered for matching if the GSTR – 2/3 would not have been suspended). Therefore a return filed on the due date reflecting the tax paid by way of utilizing the input tax credit and showing the balance tax as payable, although not a valid return for matching, would still remain a return filed u/s 39.

Appendix

It has been proposed to substitute the proviso to Section 50(1) of the CGST Act, so as to charge interest on delayed payment of GST on net tax liability only and that too retrospectively with effect from the July 1, 2017.