Tips to Avoid Penalties on GST – Late Fees and Interest

At the time of drafting GST rules, the GST council settled not only on the tax rates on goods and services but also on the penalty on late payments for GST. Under the GST system, you might be wondering how interest on late payment work.

GST Late Payments

For every late payment you make, the Government can charge a certain amount of interest. GST liability shall usually be settled on or before the 20th of each month.

This article covers:

  • Order of GST Payment
  • Interest on GST Late Payments
  • Interest Payable on GST Refund
  • Penalty on Wrong GST Credit Use
  • The Bottom Line

Order of GST Payment

You should have a fair knowledge about the order of GST Payment before knowing the interest on GST late payment.

Every time a taxpayer pays GST, the taxpayer’s electronic-cash-ledger is credited. And the accessible credit in the cash ledger is used to settle the liability present in such taxpayer’s liability ledger. However, in a scenario where the cash ledger does not contain sufficiently credit, the order given for GST Payment shall be followed:

  1. Previous tax period dues shall be settled.
  2.  Current tax period dues shall be settled.
  3. The payable amount under GST shall be adjusted.

Interest on GST Late Payment

In general, an interest of 18% annum applies to any late payment of GST.  If a taxpayer is found to have stated wrong GST Output tax liability, then 24 % interest on such payment is applicable. In addition, the penalty may also be levied for incorrect filing of GST returns.

Interest Payable on GST Refund

If any amount of interest is payable on the GST Refund by the government, then the following interest rate is applicable on the GST Refund:

Interest Payable on

Rate of Interest

Refund Appealed

6%

Delayed Payment

6%

As a scenario, if an order for a refund on the delayed payment was issued by the Appellate Authority or Tribunal, then the government is liable to pay interest of 9 % per annum on such a refund.

Penalty on Wrong GST Credit Use

The Tax Officer will send a notice consisting of the amount due along with the interest and penalty. If it is noticed that the GST benefit is misused to evade tax. To know the amount of interest applicable to the delayed payment of GST, please refer to the table below. And in the case of tax evasion a penalty may also be levied at the rate shown below:

Payment Time

Penalty Amount

Prior to show cause notice

15% of the due tax amount

Within 30 days of issuance of show cause notice

25% of the due tax amount

Within 30 days of communication of the order

50%  of the due tax amount

Other cases

100% of the tax amount

 Interest on GST Return

Late fees and interest rates are important factors of the GST payment and are paid by businesses in the case of delay in the submission or filing of GST returns.

 Late Fees under GST

GST PenaltyThe late fee is an amount charged for delay in filing GST returns, in accordance with GST law. This can be termed an overdue fine. If a GST Registered Business misses filing GST Returns within the due dates, some overdue fees are charged. The missed payment for the delay of filing NIL returns is also applicable. For example, no estimates in the GSTR-3B to declare for sales or purchases for the month of December 2018. Still, you need to file that return.

The amount should depend on the number of days of delay from the due date. GST returns in GSTR-3B will be filed on January 23rd, 2019, 3 days after the prescribed due date i.e. January 20th, 2019. Late fees will be calculated over 3 days and cash paid.

However, the GST portal is currently aligned to charge a late fee on GSTR-3B, GSTR-4, GSTR-5, GSTR-5A, GSTR-6, GSTR-8, GSTR-7 and GSTR-9 returns.

Amount of Late fees applicable

As per the Acts, both the CGST and the SGST Act prescribe the following late fees for intra-State supplies:

Name of the Act Late fees for every day of delay
Central Goods and Services Act, 2017 Rs 100*
Respective State Goods and Services Act, 2017 (or) Union territory Goods and Services Act, 2017 Rs 100*
Total Late fees to be paid Rs 200*

The law has set a maximum late Rs 5,000 fee. It means that the maximum late fees that can be charged by the government, in any situation, are Rs 5,000 each return that is filed under each Act.

Under the IGST Act, the late fee for inter-state supplies is approximately equal to the sum of fees prescribed under both the CGST and the SGST Act. The late fee, then, is:

Name of the Act Late fees for every day of delay
Integrated Goods and Services Act, 2017 Rs 200*

The legislation has set a maximum late Rs 5,000 fee. It means that the maximum late fees that can be charged by the government, in any situation, are Rs 5,000 per return that is submitted under the Act.

For Nil Return filers
Name of the Act Late fees for every day of delay
CGST Act Rs 50
SGST Act Rs 50
IGST Act Rs 100

For example, a Taxpayer has filed GSTR-3B for the month of December 2017 (due date 20th Jan 2018) on 23rd January 2018.

Amount of late fees to be paid:

Rs. 50 per day  3 days = Rs. 150 (Rs. 75 CGST + Rs. 75 SGST)

If the above return was a return with ‘Zero’ tax liability then late fees would be:

Rs. 20 per day  3 days = Rs. 60 (Rs. 30 CGST + Rs. 30 SGST)
( Subject to change via CBEC notifications)

CBIC has notified a reduced amount of late fees for a delay in filing some GST returns for a temporary period as a relief measure for businesses having difficulties using the GST portal. It is as follows:

  • For Intra-state supplies,
Name of the Act Reduced Late fees for every day of delay
CGST Rs 25
SGST Rs 25
Total Late fees to be paid Rs 50
  • For Inter-state supplies,
Name of the Act Reduced Late fees for every day of delay
IGST Rs 50
  • Nil return filers must note the reduced late fee applies as follows:
Nil Return
Name of the Act Reduced Late fees for every day of delay
CGST Act Rs 10
SGST Act Rs 10
IGST Act Rs 20

FOR GST ANNUAL RETURNS(GSTR-9)

The law also set a maximum late fee of a sum calculated for the financial year at 0.25% of the turnover.

Name of the Act Late fees for every day of delay
Central Goods and Services Act, 2017 Rs 100*
Respective State Goods and Services Act, 2017 (or) Union territory Goods and Services Act, 2017 Rs 100*
Total Late fees to be paid Rs 200*

Up-to-date List of late fees changes

Following are the changes that have been made on the applicability of the late fee law:

How to deposit Late fees with Government

The amount of the applicable late fee will be calculated automatically by the GST portal while the GST returns are submitted. The Late Payment for CGST, SGST, and IGST are paid separately in cash in separate electronic cash ledgers. After payment of the Late Fee, the GST return may not be filed.

Quick View: Late Fees for GST Return as per the GST Act

  • All returns except Annual Returns: Rs. 200 per day (Rs. 100 CGST + Rs. 100 SGST) of default up to a maximum of Rs 5,000.
  • Annual Returns: Rs. 200 per day (Rs. 100 CGST + Rs. 100 SGST) of default up to a maximum of 0.25% of Turnover.

Interest under GST

It is applicable on Late Payment of GST Due

Interest has to be paid by every taxpayer who:

  • Makes a delayed GST payment i.e. pays GST after the due date.
  • Claims excess Input Tax Credit
  • Reduces excess Output Tax Liability.

Currently, GST has to be paid at the time of filing GSTR-3B and GSTR-4. If GST is not paid within the due dates of filing return Interest at following rates has to be paid:

Particulars Interest
Tax paid after the due date 18% p.a.
Excess ITC Claimed or excess reduction in Output Tax 24% p.a.

For example, a taxpayer fails to make a tax payment of Rs. 10,000 for the month of December 2017 (due date -20th Jan 2018). He makes the payment on 20th Feb 2018.

Interest will be calculated as follows:

Rs. 10,000 * 31 days/365 * 18% = Rs. 153

Conclusion

For businesses, it is necessary to file the GST returns on time as specified by the tax department. Missing the deadline will result in heavy penalties and interest. However, there are various types of GST returns which can be beneficial to the public. Having said that, one should always take care of preparing all the documents and exemptions under the section.

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