Interest on Late Payment of GST

Interest on late payment of GST (Goods and Services Tax) is a penalty imposed by the government for not paying the tax due within the prescribed time. Here are the key points you need to know:

1. Legal Provision
Under Section 50 of the CGST Act, 2017, interest is applicable for:

Delayed payment of tax, and

Wrongful availment/utilization of input tax credit (ITC).

2. Rate of Interest
18% per annum: For delayed payment of GST (i.e., tax not paid within the due date).

24% per annum: For undue or excess claim of ITC or excess reduction in output tax liability.

3. Calculation of Interest
Interest is calculated on the net tax liability (i.e., after adjusting eligible ITC) from the due date of payment till the actual date of payment.

Formula:

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Interest = (Outstanding Tax Amount) × (Interest Rate) × (Number of Days) ÷ 365
4. Payment of Interest
Interest must be paid in cash only, and cannot be set off using the Input Tax Credit.

5. Common Scenarios Where Interest Applies
Filing GSTR-3B after the due date with unpaid tax.

Late payment of self-assessed tax.

Reversal of ITC wrongly claimed.

Non-payment or short payment of tax due to incorrect classification.

6. Recent Clarification
As per CBIC Circular No. 142/12/2020-GST, interest is payable on net tax liability (i.e., cash portion only) in case of delayed returns, not on gross liability (with effect from 1 September 2020, prospectively).