Sitharaman's first Budget gives breather for delay in payments towards GST

Those paying goods and services tax (GST) after the due date have been given relief in the Budget. The Finance Bill, which is yet to be passed by Parliament, has proposed that interest would be charged on the delayed payment on net basis. Gross tax liability includes input tax credit (ITC) available to tax payers, while the next tax liability excludes that portion. 

For this purpose, it has proposed amendments in the Central GST Act. Interest is levied at 18 per cent on the delayed payment. In fact, the GST Council in its 31st meeting on December 21 last year had decided that the interest would be levied on the net payments. 

However, confusion arose after a standing order by the principal commissioner of central tax, Hyderabad, in February this year, which said, “Since ITC/credit in balance in the ‘Electronic Credit Ledger’ cannot be treated as the tax paid, unless it is debited in the said credit ledger while filing the return for off-setting the amount in the ‘Liability Ledger’, the interest liability is mandatorily attracted on the entire tax remained unpaid beyond the due date prescribed.” 

The order was interpreted by many as stipulating that interest is liable to be paid on the total amount of GST, irrespective of the amount of input tax credit. Also, the Telangana High Court in April this year had rejected a writ petition challenging the imposition of interest on total goods and services tax liability including ITC. 

“…the claim made by the respondents (tax authorities) for interest on the ITC portion of the tax cannot be found fault with. Hence, the writ petition is dismissed,” the court had said. 

However, now the Finance Bill has cleared the air on the issue. 

It said, “(Interest) shall be levied on that portion of the tax that is paid by debiting the electronic cash ledger.” 

Abhishek Rastogi, partner at Khaitan & Co, said this is a big relief and will substantially reduce the brunt of interest. 

“The applicability of interest on the liability to be discharged from the cash ledger was a demand from industry and has been addressed by the Finance Minister Nirmala Sitharaman,” Rastogi said. 

Many industry players had requested the GST Council to clear the air in this regard. For instance, the Federation of Automobile Dealers Associations (FADA) had urged the Council to take note of the undue hardship caused to auto dealers on charge of interest on gross value instead of net of ITC value, while making the GST payment on monthly basis. 

FADA President Ashish Harsharaj Kale had said many FADA members are small family-run businesses located in tier 2&3 towns and face difficulties in GST compliances or returns, many a times due to system mismatches not in their control. However, because of the nature of the auto retail trade, the business turnover and input tax credit available is quite high, a communication by the association to the Council said. 

The interest is levied on forms submitted after the due dates prescribed. For instance, due date for the form GSTR3B — a summary input-output return — is 20th of the month, which follows the month when a transaction is made for large firms with a turnover of Rs 5 crore annually. 

For those with annual turnover of up to Rs 5 crore, returns could be filed quarterly. The current mechanism of filing returns is being replaced by simplified forms that would come into operation in phases.