CBIC notifies Net Tax Liability to be Considered for Interest on Late GST Payments with effect from Sep 1, 2020 [Read Notification]

The Central Board of Indirect Taxes and Customs (CBIC) notified the interest on late GST payments would be applicable only on net cash tax liability after the deduction of the available input tax credits w.e.f. from 1st September 2020.

“In exercise of the powers conferred by sub-section (2) of section 1 of the Finance (No. 2) Act, 2019 (23 of 2019), the Central Government hereby appoints the 1st day of September 2020, as the date on which the provisions of section 100 of the Finance (No. 2) Act, 2019 (23 of 2019), shall come into force,” the notification dated 25th August 2020 said.

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.

However, Interest for delay in payment of GST to be charged on the Net Cash Tax Liability w.e.f. from 1st September 2020 as per the latest notification.

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.

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.