Net tax liability to be considered for interest on late GST payments from Sept 1

The GST Council had recommended that the move should have retrospective effect – from July 1, 2020 – as it was the correct position of law.

Interest will be charged on the cash component of delayed settlement of Goods and Services Tax (GST) liability from September 1, the government has said, in a move which will bring relief to the industry.

The industry, which has been waiting for the notification to come into effect since 2019, had earlier this year raised concern over the directive of recovery of about ₹46,000 crore of unpaid interest, charged on gross tax liability, on delayed GST payment.

The GST Council had recommended that the move should have retrospective effect – from July 1, 2020 – as it was the correct position of law.

The GST Council, comprising Centre and state finance ministers, had decided in its 39th meeting in March that the interest for delay in payment of GST will be charged on net tax liability with effect from July 1, 2017, and law would be amended retrospectively.

The Central Board of Indirect Taxes and Customs (CBIC) clarified that the notification on August 25 relating to interest on delayed payment of GST has been issued prospectively due to certain technical limitations.

“However, it has assured that no recoveries shall be made for the past period as well by the Central and State tax administration in accordance with the decision taken in the 39th Meeting of GST Council. This will ensure full relief to the taxpayers as decided by the GST Council,” it said.

The board had earlier said that GST law permits interest calculation on delayed GST payment on the basis of gross tax liability. This position has been upheld in the Telangana High Court’s decision on April 18, 2019.

Net GST liability is calculated after deducting input tax credit from gross GST liability. Hence, calculating interest on gross GST liability increases the payout burden on businesses.

Businesses, other than those under the composition scheme and quarterly return filers, registered under GST have to file returns (GSTR-1) showing tax liability by 11th of the next month and pay taxes by filing GSTR-3B between 20th-24th. Due date varies according to the state in which businesses are registered.

There have been cases where GST assessees have paid taxes after the due date but did not pay the interest due on account of delayed payment. There were doubts about whether the interest was to be paid on gross tax liability or net tax liability. Interest at the rate of 18% is levied on delayed tax payment.

(With agency inputs)