Section 50 of the CGST Act provides for interest on delayed payment of tax. The provision has been the subject of significant litigation and clarification, particularly regarding whether interest applies to the gross tax liability or the net liability after ITC. The current position is that interest applies only to the net tax liability discharged in cash.
This article explains the interest provisions and the calculation methodology.
Rate of Interest
Interest under Section 50(1) is payable at 18% per annum on the unpaid tax. Interest is calculated from the date on which the tax became due until the date of actual payment.
Net Tax Liability Calculation
The Central Board of Indirect Taxes and Customs has clarified that interest under Section 50(1) is payable only on the net tax liability — that is, the tax payable in cash after adjusting available ITC. The formula is:
Interest = (Net Tax Liability — Minimum Cash Balance in ECL from due date to date of debit) × (No. of days delayed / 365) × 18%
Higher Rate for Wrongful ITC
Under Section 50(3), interest at 24% per annum applies where ITC has been wrongly availed and utilised. The higher rate applies only where the ITC was utilised, not merely availed.
Payment of Interest
Interest must be paid through the electronic cash ledger. ITC cannot be used to pay interest.
Practical Implications
- Interest is automatic and applies even if the return is filed late without any demand notice.
- The net liability basis reduces the interest burden significantly.
- Wrongful ITC utilisation attracts a higher interest rate.
Conclusion
Interest under Section 50 is a significant cost of delayed compliance. Taxpayers should calculate interest on the net liability basis and pay it promptly to avoid escalation.
At Anuj Desai & Associates, we provide expert advisory services on GST interest calculation and payment. Our team can help you compute and discharge interest liability correctly.
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