Net Tax Liability to be Considered for Interest on Late GST Payments

The 39th GST Council meeting declared that the interest on delayed GST payments would be applicable only on net cash tax liability after the deduction of the available input tax credits. The interest on a delayed GST payment will no longer be charged based on the gross tax liability. This change will be applicable retrospectively with effect from 1 July 2017, the date on which GST legislation came into force.

Net cash tax liability is calculated after deducting the available input tax credits from gross tax liability. This retrospective amendment in the law has offered taxpayers with a big sigh of relief and also prevents a few potential litigations. The Finance Minister, Nirmala Sitharaman also mentioned in the meeting that the government would be introducing appropriate amendments to incorporate the suggested recommendations.

In 2019, the government had amended Section 50 of the CGST Act to clarify that the interest will be levied on a net basis. This did not, however, explain whether the move would be made on a prospective or retrospective basis. The confusion has now been cleared. The Council’s decision with regards to imposing interest liability retrospectively on a net basis has been a significant relief for taxpayers with substantial input tax credits.

Also Read: The Saga of Interest on Delayed GST Payments

The policy reforms are coming at a time when businesses are struggling with a declining economy. This recommendation will not only render substantial relief to taxpayers, but it will boost their confidence. Also, the proposed changes will help in easing the immediate cash flow burden for firms since recovery notices have been issued demanding interest on gross tax liability.

Financial experts believe that authorities will need to issue notifications separately to clarify regarding the position of tax which is already paid. It is yet to be seen whether or not additional interest paid will be refunded or not to a taxpayer who has already paid the interest on the gross amount.

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