Goods and service Tax is almost three years old now however still the calculation of interest on late payment of GST is not very clear to the taxpayers. Also the online portal does not calculate any late interest for you it just calculates the late fee.
Hence people need to either self calculate the late interest for the late payment of GST or wait for the department to send them a notice for such interest amount.
Section 50 of the CGST act deals with interest on late payment of GST which is as under:
“(1) 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.
(2) 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.
(3) 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.“
As per the above section many people were confused as to whether the interest needs to be paid on the gross output tax liability in GSTR 3B or net GST output tax liability.
Also many cases were filed and fought in the High Court relating to the same issue. Later, an amendment was made in finance act 2019 where in the above query was resolved.
Section hundred of the finance act 2019 stated that interest needs to be paid on the net GST liability and not on the gross amount.
However the finance act never gave the date from which this will become applicable and it was mentioned that this section will be made applicable from the date it is notified.
This again created a confusion in the minds of people and they were worried as to how an amendment which was announced by finance act 2019 has been made applicable from September 2020 prospectively and not retrospectively and will they have to pay interest on gross tax liability still September 2020.
Hence due to the above confusion GST department made a press release
where the clarified that the notification is made applicable from 1st September 2020 due to some technical issues however no GST notices shall be sent by any GST official for recovery of any interest on cross laboratory before 1st September 2020.
Thus, the notification read with the above press release makes it clear that interest on late payment of GST needs to be paid and be recovered only on the net output tax liability i.e. GST which needs to be paid after setting off ITC.