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Interest to apply only on net cash liability of unpaid GST

A writ petition was filed in the Telangana High Court, challenging the levy of interest on the gross amount of tax payable. 

The petitioner appealed against interest being charged on the input tax credit portion of the tax due, as the GST portal does not allow a return to be filed unless the liability due in cash has also been paid off. 

The Union Budget 2019 has provided relief to GST-registered taxpayers in relation to the interest on delayed payment of GST liability.

Earlier, interest was charged on the entire amount of tax paid after the due date.

The present rate of interest on the delayed payment of tax liability is 18% per annum on unpaid GST and is charged on all modes of payment of tax, even when actual cash has not been paid, but input tax credit has been used instead.

ITC credit arises when tax has already been paid to the government and credit is eligible and therefore charging interest on the entire amount, including such portion paid by utilizing input tax credit, is unreasonable and unfair.

The 31st GST Council meeting recommended changing this Law to provide that only the net liability of a taxpayer would hereafter be subjected to interest on delayed payment. Under this new amendment, interest will now be charged on only that portion of the GST liability which is paid by debiting the electronic cash ledger.

Consequently, section 50 of CGST Act, 2017 was amended to provide that interest will now be charged on only that portion of the GST liability which is paid by debiting the electronic cash ledger.

Author: Niranjan Reddy

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