The Goods and Services Tax (GST) regime stipulates strict timelines for compliance activities like filing returns and making tax payments. Any delays invite interest liability that adds to the tax cost for businesses. Recently, the method for calculating such interest was amended, aiming to deter non-compliance. However, it also increases the financial burden for taxpayers already dealing with tight liquidity.
Calculating Interest Liability
Per CGST Rule 88B, interest is payable on the gross GST liability in case of delays in filing returns or making tax payments. It is calculated from the original due date till the date of filing/ payment at 18% per annum. This rule applies retrospectively from July 1, 2017.
Specifics of Rule 88B
According to Rule 88B (1), if returns are filed after the due date, interest shall be calculated on the amount paid by debiting the electronic cash ledger. This means interest applies on the tax liability after adjusting available input tax credits in the Electronic Credit Ledger.
The interest calculation period starts from the original return filing due date till the actual date of filing as per Rule 88B(1). For other tax payment delays, Rule 88B(2) specifies that interest is calculated on the full unpaid tax liability from the date when tax became due till the date of actual tax payment.
Determining GST Liability
The first step is identifying the correct GST rate under the four tax slabs of 5%, 12%, 18% and 28%. Next, use the GST calculation formula: GST amount = (Value x GST rate) ÷ 100. This gives the output tax liability on which interest may apply for non-compliance.
For instance, if a product worth Rs. 1,000 is charged at 18% GST:
GST amount = Rs. 1,000 x 18% = Rs. 180
Total price (with GST) = Rs. 1,000 + Rs. 180 = Rs. 1,180
Using an Online Interest Calculator
You can use an online GST interest calculator to compute interest liability based on the tax amount and delay period automatically using Rule 88B. This helps ascertain additional costs for non-compliance.
Impact on Input Tax Credit
The GST regime in India provides businesses the benefit of input tax credit (ITC) to offset taxes paid on purchases against GST payable on sales. Delayed filing can impact the ability to claim input tax credit to set off output GST. This increases effective tax costs as output GST cannot be set off against input credits.
Moreover, delays can also attract interest, penalties, and scrutiny from tax authorities – all leading to additional compliance costs and complexities. So adhering to compliance timelines is key even for taxpayers with input credits. Losing input tax credits due to delays can significantly impact working capital for businesses amidst growth.
Minimising Interest Payouts
There are several effective strategies to minimise interest burden on delayed GST payments:
- Ensure timely compliance with return filing and tax payment deadlines to avoid automatic interest application.
- Validate output tax calculations for accuracy to avoid underpayment as well as overpayment scenarios. Both attract financial costs.
- Fully utilise input tax credits available to offset output tax dues and reduce net liability on which interest applies.
- Leverage online interest calculators to determine actual interest dues based on respective delay circumstances.
- Automate reconciliation of purchase registers with GST returns to enable maximum credit utilisation and minimise discrepancies.
So, a combination of diligent compliance, correct tax computation, availing input credits, determining interest liability precisely, and deploying automation enables significant savings on GST interest payouts amidst business growth.
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The amended provisions for GST interest calculation significantly increase the costs for delayed compliance. Instead of net tax liability, interest now applies on the gross output tax owed. Given the retrospective applicability, this enhanced burden can accumulate over several past non-compliance instances.
Therefore, taxpayers must proactively reconcile books, avail input tax credits, compute tax liability accurately, and file returns or remit dues before deadlines. Automation and staying updated on changing GST rules can help minimise interest outgo while optimising working capital amidst business growth.