Through GST, Government has tried to digitize 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.

If any registered person “fails to pay the taxes” to government or deposits the taxes after the due dates, then the registered person has to pay the interest as prescribed under different sections of GST Acts. Similarly, if the registered person has “claimed excess input credit” or “claimed input credit without their eligibility”, in such scenario also the registered person will be liable for interest payment.

There can  be  multiple reasons where  liability for  payment of  interest  can arise.  Defaults in  payment of output tax, excess credit availed & reversal of credit are some of the examples. Under GST regime, there are 2 rates have been prescribed for levy of interest. Section 50(1), which deals with late payment of output tax, interest rate chargeable will be 18% p.a, and under section 50(3) which deals with excess or undue input credit interest payable will be @ 24% p.a.

a) Situation covered under section 50(1) of CGST Act:

Tax Deposited after due date:

If     registered     person     has 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: The        registered person  reported  tax  liability in      his      return      of      INR 10,00,000  for  the  month  of August  2017  for  which  due date was 20 September 2017 but made the payment of INR 10,00,000 on 1 October 2018, here   the   registered   person will be liable for interest for 11 days from 21  September to  1 October @18% per annum.

Output tax determined wrongly

If   the   registered   person   has under reported their output tax liability in return then they will be  liable  for  interest  @  18%, whenever   they   or  any   officer finds   that,   registered   person 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  the  registered  person 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.

In  these  cases,  where  taxpayer under reported their output tax liability  then  they  have  to  pay interest @ 18% per annum1.

Input Credit wrongly availed

Whenever    registered    person 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  the registered  person  claimed  400 (200+200) input credit.

Example: The registered person 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  the registered person 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 registered person 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 the registered person 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 avails the input credit on the basis of actual supplies received but the supplier didn’t report 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 within 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 start from 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
• If the registered person was required to pay IGST but wrongly paid CGST/SGST or vice versa then it will not be treated as default, hence interest liability will not

1 Basis for calculation of days will remain same as mentioned in above example.