Recovery of Interest u/s 50 on Net Cash Liability under GST

An amendment was made in the provision of section 50 of the Finance (No. 2) Act, 2019 to provide for charging Interest on the net cash tax liability, which was based on the recommendations of the 35th meeting of the GST Council which came into effect from September 1, 2020. This amendment has been made in the CGST act- section 50 for recovery of Interest only on net cash liability under GST.

The GST Council, in its 39th meeting, held on 14th March, 2020 recommended interest to be charged on the net cash tax liability with effect from 01.07.2017 and accordingly, recommended the amendment of section 50 of the CGST Act retrospectively with effect from July 1, 2017.

According to the Sec 50(1) of CGST Act 2017 , Every person who is liable to pay tax in accordance with the provisions of this Act or the rules made there under, but fails to pay the tax or any part thereof to the Government within the period prescribed time , shall for the period for which the tax or any part thereof remains unpaid, pay, on his own, interest at such rate, not exceeding 18%, as may be notified by the Government on the recommendations of the Council.

The calculation of interest shall be from the day succeeding the day on which such tax was due to be paid – section 50(2) of CGST Act.

The interest rate notified is 18% with effect from 01-07-2017 vide Notification Nos. 6/2017-IT, dated 28-6-2017 and 13/2017-CT, dated 28-6-2017.

Amendment of Section 50 to allow interest on net tax liability

Realizing the unintended consequence and the disastrous impact it had on the calculation of interest payment, Finance Act 2019 proposed to insert the following proviso in Section 50(1) of the CGST Act 2017:

Provided that the interest on tax payable in regard of supplies made during a tax period & declared in the return for the said period furnished after the due date in as per the provisions of section 39, except where such return is furnished after commencement of any proceedings under section 73 or section 74 in respect of the said period, will be levied on that part of the tax that is paid by debiting the electronic cash ledger.

At Current Scenario-As per section 50 of CGST Act,2017

If there is a delay in payment of tax or part payment of tax within the prescribed due date,

THEN

  • Interest is to be calculated on the gross tax liability.
    • It is to be calculated on unpaid tax on outward supplies shown in GSTR 1/GSTR 4.
    • It is to be calculated on tax payable without considering any set-off of the eligible input tax credit.
  • Rate of interest is 18% (CGST Notification no. 13/2107 dated 28.06.17)
  • Interest is to be calculated from the succeeding day of due date upto the date of payment.

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