Interest and Penalty - When Interest and Penalty are Chargeable
Interest and Penalty under GST
The Goods and Services Tax (GST) law imposes interest and penalties on taxpayers for non-compliance, such as late payment of taxes, incorrect ITC claims, or failure to file returns. Understanding when interest and penalties are chargeable is crucial to avoid unnecessary liabilities.
When Interest is Chargeable?
Interest is charged when a taxpayer delays payment of tax or wrongly claims Input Tax Credit (ITC). The GST Act specifies the following situations where interest applies:
1. Late Payment of GST
- If tax is not paid within the due date, interest is charged on the outstanding amount.
- Interest Rate: 18% per annum (calculated from the due date until the date of payment).
- Example: If GST liability of ₹10,000 is due on 20th March but paid on 30th March, interest is calculated for 10 days at 18% per annum.
2. Wrongful ITC Claim or ITC Utilization
- If a taxpayer claims excess ITC or wrongfully utilizes ITC, interest is chargeable.
- Interest Rate: 24% per annum (on the wrongly availed ITC).
- Example: If a business claims an ineligible ITC of ₹5,000 and later reverses it, interest at 24% per annum is applicable.
3. Delayed Reversal of ITC
- If ITC needs to be reversed but is not done on time, interest is chargeable at 18% per annum.
- Example: If ITC is used for non-business purposes and not reversed in time, interest applies.
4. Tax Liability Uncovered in Audit or Investigation
When Penalty is Chargeable?
A penalty is imposed for violations of GST laws, such as not filing returns, incorrect invoicing, fraud, or tax evasion.
1. Late Filing of GST Returns
- If GSTR-1, GSTR-3B, or other returns are not filed on time, a late fee + penalty applies.
- Penalty: ₹50 per day (₹25 CGST + ₹25 SGST) for normal taxpayers.
- Penalty for Nil Return: ₹20 per day (₹10 CGST + ₹10 SGST).
- Maximum Late Fee: ₹5,000.
2. Failure to Issue a Tax Invoice
- If a registered taxpayer fails to issue a tax invoice, a penalty of 100% of tax due or ₹10,000 (whichever is higher) applies.
3. Fraudulent ITC Claims or Tax Evasion
- If a taxpayer intentionally evades tax, issues fake invoices, or claims fraudulent ITC, a penalty of 100% of tax evaded applies.
- Additional penalty: ₹10,000 or the tax amount (whichever is higher).
4. Failure to Register Under GST
- If a business exceeds the GST threshold limit but does not register, a penalty of 100% of tax due applies.
5. Incorrect Filing of Returns
- If incorrect details are submitted in GST returns, a penalty of ₹10,000 or 10% of tax due (whichever is higher) is charged.
6. Failure to Maintain Records
- Businesses must maintain proper invoices, accounts, and records. If records are missing, a penalty of ₹25,000 applies.
7. Not Generating E-Way Bill for Transporting Goods
- If goods worth over ₹50,000 are transported without an E-Way Bill, a penalty of ₹10,000 or the tax due (whichever is higher) is charged.
- The vehicle may also be detained or seized until tax and penalty are paid.
Summary of Interest and Penalty
| Violation | Interest/Penalty |
|---|---|
| Late Payment of Tax | 18% per annum |
| Wrong ITC Claim & Utilization | 24% per annum |
| Delayed ITC Reversal | 18% per annum |
| Late Filing of GST Returns | ₹50/day (₹25 CGST + ₹25 SGST) |
| Fraudulent ITC Claim or Tax Evasion | 100% of tax evaded or ₹10,000 |
| Failure to Issue Invoice | ₹10,000 or 100% of tax due |
| Failure to Register Under GST | 100% of tax due |
| Incorrect GST Return Filing | ₹10,000 or 10% of tax due |
| Not Maintaining Records | ₹25,000 |
| Transporting Goods Without E-Way Bill | ₹10,000 or tax due |
Important Notes
- Interest is automatically calculated in the Electronic Liability Ledger and must be paid before filing returns.
- Penalties can be waived or reduced if the taxpayer voluntarily discloses errors before GST authorities take action.
- GST officers have the power to seize goods or impose higher penalties in case of fraudulent activities.
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