New rule 88B concerning interest provisions under GST

New rule 88B concerning interest provisions under GST

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New rule 88B concerning interest provisions under GST

Applicability of interest has been under controversy since the inception of Goods and Services Tax (GST). There has been a constant tug of war going on between the department and the taxpayer with regard to how, when, and manner in which the interest should be levied.

The following points briefs the major controversies prevalent between the department and the taxpayers –

  • Interest is to be charged on the total amount of tax payable or only on the amount debited via ‘Electronic cash ledger’. According to the department, interest is payable on the total amount of tax payable. Whereas, as per the taxpayer, interest is payable only on the amount which is debited via ‘Electronic Cash Ledger’;
  • Interest is to be charged on input tax credit wrongly availed or on input tax credit wrongly utilized (i.e., availed and utilized). According to the department, interest is payable on input tax credit wrongly availed. Whereas, as per the taxpayer, interest is payable on input tax credit wrongly availed and utilized.

With a view to clear up the ongoing fight between the department and the taxpayer, and also to minimize the litigation in the interest matter, the ‘Central Board of Indirect Taxes and Customs’ inserted rule 88B into the Central Goods and Services Tax Rules, 2017.

Notably, rule 88B is inserted via notification no. 14/2022-Central Tax dated 5th July 2022. Importantly, the newly inserted rule 88B provides the manner of calculating interest on delayed payment of tax under GST. The rule is made effective, retrospectively, from 1st July 2017.

The said rule 88B along with section 50 of the Central Goods and Services Tax Act, 2017 is taken up and explained in the current article.

Interest on delayed payment of tax –

Section 50 of the Central Goods and Services Tax Act, 2017 covers the provisions relating to interest on delayed payment of tax. Accordingly, the provision prescribes payment of interest in the following two situations –

Situation 1 [Section 50(1)] – Interest @18% per annum is payable by the taxpayer who is liable to pay the GST, however, fails to pay the tax within the stipulated time or makes a short payment of tax due to him.

Situation 2 [Section 50(3)] – Interest @24% per annum is payable by the taxpayer who either makes a wrongful/ excessive claim of input tax credit or makes an undue/ excess reduction in output tax liability.

Notably, a proviso was inserted to section 50(1), vide the Finance Act, 2021 made effective retrospectively from 1st July 2017.

The said proviso clarified that in case of a delayed payment of tax, interest will be payable only on that portion of the tax which was paid via debiting ‘electronic cash ledger’. However, the said benefit is not available in the cases, wherein, the return is furnished after initiation of proceedings under section 73 (non-fraud cases) or section 74 (fraud cases).

Manner of computing interest on delayed payment of tax –

Central Board of Indirect Taxes and Customs, introduced the Central Goods and Services Tax (Amendment) Rules 2022, vide notification no. 14/2022- Central Tax dated 5th July 2022. Rule 88B was inserted vide said amendment rules.

The following table explains the provisions of newly inserted rule 88B of the Central Goods and Services Tax Rules, 2017 –

Section 50 Corresponding provisions covered under rule 88B Explanation as covered under rule 88B
Section 50(1) relating to delayed payment of tax vis-à-vis filing of return in Form GSTR-3B Rule 88B(1)

Amount on which interest is payable –

In case of a delayed payment of tax, interest on tax payable will be calculated only on that portion of the tax which is paid via debiting the electronic cash ledger.

 

Period for which interest is payable –

Such interest will be calculated from the due date of filing of return till the return is filed.

Section 50(1) relating to delayed payment of tax vis-à-vis in all other cases (other than the one covered above) Rule 88B(2)

Amount on which interest is payable –

Interest will be payable on the amount of tax which remains unpaid.

Period for which interest is payable –

Such interest will be calculated from the date on which the tax was due till the date on which the tax was paid.

Section 50(3) relating to wrongful availment of input tax credit Rule 88B(3)

Amount on which interest is payable –

Interest will be calculated on the amount of input tax credit which is wrongly availed and utilized. Meaning thereby, that interest is not payable on input tax credit which was only wrongly availed. Interest will be payable only when the wrongly availed input tax credit is utilized.

Input tax credit wrongly utilized = Amount of input tax credit wrongly availed (-) Balance available in the electronic credit ledger.

Period for which interest is payable –

Interest is to be calculated for the period starting from the date on which the wrongly availed input tax credit was utilized (i.e., date of the utilization of input tax credit) till the date of reversal of such input tax credit.

Date of the utilization of input tax credit means as under –

Cases, wherein, return in Form GSTR-3B is to be furnished Date of the utilization of input tax credit = Earlier of the due date of the return or actual date of return.
In any other case Date of debit in the electronic credit ledger.

Summary of new provisions covered under rule 88B –

  • In case of delayed payment of tax, interest will be payable on the amount of tax paid via debiting the electronic cash ledger.
  • In case of wrongful availment of input tax credit, interest becomes payable only when the wrongful input tax credit is availed and utilized.

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CA Poonam Gandhi is a Chartered Accountant and a Lawyer. With a wide practice experience and deep understanding of different laws and taxes, she has been an independent professional writer in the field of taxation, finance and laws.