Section 50 and Rule 88B: How Interest on Late GST Is Computed

This article sets out when interest becomes payable on delayed GST under Section 50 of the CGST Act, 2017, how Rule 88B of the CGST Rules, 2017 fixes the base and the period, and how the position differs for input tax credit that is wrongly availed and utilised.

Interest is the one consequence of delay that arises automatically, without any notice or adjudication. Computation errors in GSTR-3B and in demand replies are common, and the cash ledger timing question that the GST Council has discussed makes the base on which interest is charged a live issue in many late-return files.

Issue 1: Interest on ordinary late payment

Governing law

Section 50(1) requires a person who is liable to pay tax and who fails to pay it, or any part of it, within the prescribed period to pay interest for the period for which the tax remains unpaid. The rate is as notified by the Government on the recommendation of the Council, and cannot exceed 18% per annum.

Section 50(2) fixes the period. Interest runs from the day succeeding the day on which the tax was due to be paid, so it is charged for the actual number of days of delay and not for whole months.

Position

Interest is compensatory. It follows the passage of time during which the Government is out of funds that were due, and it does not depend on intent, on the reason for the delay, or on whether a penalty is later imposed. A bona fide dispute on the due date does not suspend it.

Computation

The working formula is:

Interest = tax remaining unpaid x annual rate x number of days of delay / 365

Illustration (hypothetical): tax of Rs 2,40,000 is due on 20 of a month and is paid on the 27th. The delay is 7 days, counted from the 21st to the 27th. At 18%, interest is 2,40,000 x 18% x 7 / 365, which is about Rs 828.49. The notified rate for the period should be applied in place of the ceiling, and the day count must follow the date of actual credit to the Government account.

Issue 2: What Rule 88B changes about the base

Rule 88B prescribes the manner of calculating interest. Two cases need to be kept apart.