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Interest on Delayed GST Payment / Interest on Late Payment of GST– Explained with Rule 88B & Section 50 (with Examples)

Paying GST on time is one of the most important compliances under the Goods and Services Tax (GST) law. However, if tax is paid late or the return is filed after the due date, interest becomes payable under Section 50 of the CGST Act. The manner of calculation of such interest is now clearly explained in Rule 88B, which became effective from 1st July 2017 (with latest amendments in 2023).

Let us understand this in simple language and through practical scenarios.

What Does Section 50 Say?

According to Section 50(1) of the CGST Act:

• If a person does not pay GST on time, they must pay interest on the unpaid tax.
• The interest rate is notified by the government (usually 18% per annum).
• This interest is payable from the day after the due date till the actual date of payment.

But there's a relief too:

·       If the return is filed late, but voluntarily (i.e., before a notice is issued under Section 73, 74 or 74A),

·        And the tax is properly declared in the correct tax period’s return,

·       Then interest is payable only on the tax paid using cash, not on the amount paid using Input Tax Credit (ITC).

What Does Rule 88B Add?

Rule 88B explains exactly how to calculate interest in different cases:

1. Late Filing of Return for the Same Month

If you declare the outward supplies in the correct month (e.g., Jan 2024), but file GSTR-3B late (say on 28 Feb 2024 instead of 20 Feb 2024), then:

• Interest is payable only on the cash portion of tax.
• No interest on the ITC used.
• Further, if the cash was already deposited before 20 Feb 2024, and stayed in your Electronic Cash Ledger until you filed the return, then no interest at all on that part.

Example 1:

• You issued invoice on 28 Jan 2024
• You reported it in GSTR-1 of Jan
• GSTR-3B due: 20 Feb 2024; filed: 28 Feb 2024 (8 days delay)
• Tax: ₹10,000 → ₹7,000 via ITC + ₹3,000 via cash
• Cash deposited on 19 Feb → stayed unused till 28 Feb

Result:

• No interest on ₹7,000 (ITC)
• No interest on ₹3,000 either (cash was lying from before due date)

Example 2:

• Same facts, but cash of ₹3,000 was deposited on 25 Feb (after due date)

Result:

• No interest on ₹7,000 (ITC)
• Interest on ₹3,000 from 21 Feb to 25 Feb (5 days)

2. Delayed Declaration of Taxable Supply

If you issue an invoice in January 2024, but report it in February 2024 return, it is considered as delayed payment of tax.

In this case, even if the February return is filed on time (say 20 March), the tax for January is being paid after the due date, so interest is payable from 21 Feb till date of payment.

Example 3:

• Invoice date: 31 Jan 2024
• Not reported in Jan GSTR-3B
• Reported and tax paid in Feb GSTR-3B (filed on 20 March 2024)
• Tax paid: ₹5,000 (₹3,000 ITC + ₹2,000 cash)

Result:

• Interest on ₹5,000 from 21 Feb to 20 March (28 days)
• No benefit of Rule 88B(1) applies because the return for correct month was not filed

Wrongly Availed and Utilised ITC

If you wrongly take ITC and also use it to pay tax, then interest is payable under Section 50(3) and Rule 88B(3). However, interest is only on the portion of ITC actually used, not the full wrongly availed amount.

The ITC is considered to be utilised when the credit ledger balance falls below the wrongly availed amount. The interest period is from the date of utilisation till the date of reversal or tax payment.

Example 4:

• Wrong ITC claimed: ₹20,000 in Jan
• Used in Jan to pay tax (credit balance reduced below ₹20,000)
• Reversed on 15 March

Result:

• Interest on ₹20,000 from 20 Jan (return due date) to 15 March at 24% p.a.

Key Takeaways

Conclusion

The GST law clearly distinguishes delayed filing of returns from delayed payment of tax or wrong utilisation of ITC. Thanks to Rule 88B, interest is now calculated in a fair and reasonable manner:

• Only cash portion attracts interest on late returns.
• If cash is already deposited before due date, no interest.

Interest on wrong ITC only if actually used

Disclaimer: All the Information is based on the notification, circular and order issued by the Govt. authority and judgement delivered by the court or the authority information is strictly for educational purposes and on the basis of our best understanding of laws & not binding on anyone.