Proviso to section 50(1) allows taxpayer to pay interest on the cash portion of his delayed payment. An exception is carved out that interest is payable on the gross amount if the return is filed after the initiation of proceeding by the Department u/s 73 or 74. The reasoning behind this provision is that the ITC balance was available with the taxpayer and by delayed filing of the return (GSTR 3B) and delayed off setting of the liability, the Govt. is not deprived of the funds for the intervening period.
In order to avail the benefit of interest on cash portion only, the following conditions should be satisfied :
- Supplies made in a particular tax period (say Sept 2022) are declared in the return for the same period (Sept 2022)
- The return is filed beyond due date.
- The return is filed before initiation of any proceedings u/s 73 or 74.
- The return referred to is return u/s 39 namely GSTR 3B.
Thus, if any of the above conditions is not fulfilled, then the benefit of the proviso is not available, and interest is payable on gross liability.
Examples:
- Example: GSTR 3B filed for Sept 2022 with the following figures:
Output GST | Rs. 100 |
Paid by ITC | Rs. 100 |
ITC balance available after setoff | Rs. 50 |
In the above example, suppose the taxpayer subsequently realizes that he forgot to report some B2C sales and output GST of the same was say Rs. 20. Now while filing GSTR3B of Oct 2022, the taxpayer adds the output liability of Sept 2022.
The figures are as under:
Output tax of Oct 2022: | Rs. 60 |
Differential output tax of Sept 2022 | Rs. 20 |
Total output liability | Rs. 80 |
ITC available | Rs. 55 |
Net cash payment | Rs. 25 |
As per the proviso, the output liability of Rs. 20 relating to Sept 2022 attracts interest as the discharge of this liability is done late. Instead of paying through the GSTR3B of Sept 2022, it is discharged through the GSTR3B of Oct 2022. Thus, it is approximately one month late. And interest will be payable on this liability of Rs. 20. But, in Sept 2022, the taxpayer had a balance of ITC Rs. 50, which was sufficient to cover the missed-out liability of Rs. 20. Therefore, ideally no interest should be payable.
However, the proviso allows the relief only if the liability is declared in the same tax period. Therefore, even if the balance in ITC is available, the taxpayer must pay interest.
Recently, this was observed in a case where the taxpayer declared correct output liability in GSTR1 but declared less liability in GSTR3B because of typing mistake. Later, in the next month, after realizing the mistake, he paid it through next month’s GSTR3B. But this caused a difference in GSTR1 v/s 3B for the previous month. And the taxpayer clarified about the differential payment, but the Dept. asked interest on the gross amount even if the taxpayer had sufficient balance in the ITC of the previous month. Of course, this relates to previous financial years where GSTR3B was not auto populated. Now, this risk is less as the GSTR3B is auto populated. However, still, there is a chance of missing some B2C sales both in GSTR1 and GSTR 3B. In such case, if the assessee pays it late, he has to pay the interest on differential amount even if there was sufficient ITC balance available in the month to which the liability relates.
