GST Section 50 Explained: Interest on Delayed Tax and Wrong ITC Utilization

Section 50 of the CGST Act, 2017 deals with the levy of interest on delayed tax payments and the wrongful availment and utilisation of Input Tax Credit (ITC), playing a vital role in enforcing timely GST compliance. It mandates interest (up to 18% per annum) on late tax payments under Section 50(1), but clarifies—especially through retrospective amendments—that interest applies only on the net tax liability (cash portion), unless proceedings under Sections 73, 74, or 74A have begun.

Section 50(2) specifies that interest accrues from the day after the due date of payment, and Rule 88B prescribes the calculation method. Section 50(3) imposes a higher interest (up to 24% per annum) on wrongly availed and utilised ITC, emphasizing that interest applies only if both actions occur. These provisions, reinforced through multiple amendments, highlight the need for accurate and timely GST return filing and ITC management to avoid significant financial penalties.

GST Section 50: Unpacking Interest on Delayed Tax Payments and Wrongly Availed ITC

Section 50 of the Central Goods and Services Tax (CGST) Act, 2017, plays a crucial role in ensuring timely compliance by mandating interest on delayed tax payments and the wrongful availment and utilisation of Input Tax Credit (ITC). This section has seen significant amendments since its inception on July 1, 2017, reflecting the government’s efforts to clarify and streamline its application.

Section 50(1): Interest on Delayed Payment of Tax

This subsection is the core provision for levying interest on late GST payments.

Core Provision: Every person liable to pay tax under the GST Act or rules, who fails to pay the tax or any part thereof to the Government within the prescribed period, is required to pay interest on their own for the period the tax remains unpaid. The maximum rate of interest is 18% per annum, as may be notified by the Government on the recommendations of the GST Council.

Effective Date: Section 50 of the CGST Act, 2017 came into force on July 1, 2017, via Notification No. 9/2017-Central Tax, dated June 28, 2017.

Crucial Proviso and its Evolution: A significant amendment was introduced to this subsection to address the long-standing debate on whether interest should be levied on the gross or net tax liability.

• Original Intent vs. Initial Interpretation: While the legislative intent seemed to lean towards interest on net liability, early interpretations and departmental demands often sought interest on the gross tax liability.
• Substitution by Finance Act, 2021: The Proviso to Section 50(1) was substituted and deemed to have been substituted retrospectively from July 1, 2017, by the Finance Act, 2021 (Notification No. 16/2021-Central Tax, dated June 1, 2021).
  • Impact of the Amendment: This crucial amendment clarified that interest on tax payable in respect of supplies made during a tax period and declared in the return (furnished after the due date under Section 39) shall be payable only on that portion of the tax which is paid by debiting the electronic cash ledger.
  • Exclusion from Net Interest: This “net interest” provision does not apply where such a return is furnished after the commencement of any proceedings under Section 73 (determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilized for reasons other than fraud or willful misstatement or suppression of facts) or Section 74 (determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilized by reason of fraud or willful misstatement or suppression of facts).
• Further Amendment by Finance (No. 2) Act, 2024: The proviso in Section 50(1) was further amended (inserted) with effect from November 1, 2024, by the Finance (No. 2) Act, 2024 (Notification No. 17/2024-Central Tax, dated September 27, 2024), adding “or section 74A” to the exclusion. This indicates that the “net interest” benefit would also not apply if proceedings under the newly introduced Section 74A (likely related to summary assessment in certain cases) have commenced.

Key takeaway for Section 50(1): Generally, if you file your return late but have sufficient ITC to cover your liability, interest will only be applicable on the portion paid through the electronic cash ledger. However, this relief does not extend to cases where proceedings under Section 73, 74, or 74A have already begun.

Section 50(2): Calculation of Interest

This subsection dictates the commencement of the interest calculation.

• Manner of Calculation: The interest under sub-section (1) is to be calculated in such manner as may be prescribed. Rule 88B of the CGST Rules, inserted retrospectively from July 1, 2017, by Notification No. 14/2022-Central Tax, dated July 5, 2022, prescribes this manner.
• Commencement Date: Interest is calculated from the day succeeding the day on which such tax was due to be paid. This means interest starts accruing from the day immediately after the due date for payment.

Rule 88B (Manner of Interest Calculation): Rule 88B elaborates on the calculation of interest in different scenarios:

• Late Filing of GSTR-3B (and payment through Electronic Cash Ledger): Interest is calculated on the amount debited from the Electronic Cash Ledger for tax payment. Before a recommended amendment by the GST Council, interest was charged on the entire amount. Now, it is expected to be on the debited amount after reducing the cash available in the ledger on the due date.
• Late Payment of GST Amount (where return is filed on time but tax is not paid): Interest is charged on the outstanding GST amount.
• Wrong Input Tax Credit Claimed and Utilised: Covered under Section 50(3) (discussed below).

Section 50(3): Interest on Wrongly Availed and Utilised Input Tax Credit

This subsection addresses a distinct scenario of interest levy related to ITC.

• Substitution by Finance Act, 2022: Sub-section (3) in Section 50 was substituted and deemed to have been substituted with effect from July 1, 2017, by the Finance Act, 2022, read with Notification No. 09/2022-Central Tax, dated July 5, 2022.
• Scope of the Provision: Where the input tax credit has been wrongly availed and utilised, the registered person is required to pay interest on such wrongly availed and utilised ITC.
• Interest Rate: The rate of interest for this scenario can be up to 24% per annum, as may be notified by the Government on the recommendations of the Council. This rate is notably higher than the 18% for delayed tax payments.
• Manner of Calculation: The interest is calculated in such manner as may be prescribed (again, governed by Rule 88B).

Key Aspects of Section 50(3) and Rule 88B:

• “Wrongly Availed and Utilised”: This is a crucial distinction. Interest under Section 50(3) is only applicable if the ITC has been both wrongly availed and subsequently utilised. Mere availment without utilisation may not attract interest under this section, though other penalties under Section 122 might still apply.
• Explanation to Rule 88B(3):
  • When ITC is “utilised”: ITC wrongly availed is considered “utilised” when the balance in the electronic credit ledger falls below the amount of ITC wrongly availed. The extent of utilization is the amount by which the balance falls below the wrongly availed ITC.
  • Date of utilisation: The date of utilisation is taken as:
    • The due date of the return under Section 39 or the actual date of filing, whichever is earlier, if the electronic credit ledger balance falls below the wrongly availed ITC due to tax payment through that return.
    • The date of debit in the electronic credit ledger in all other cases where the balance falls below the wrongly availed ITC.

Summary of Key Rates:

Delayed Tax Payment (Section 50(1)): Up to 18% per annum (presently 18%).

Wrongly Availed and Utilised ITC (Section 50(3)): Up to 24% per annum (presently 24%).

Section 50 of the CGST Act, along with its associated rules and amendments, underscores the importance of timely and accurate GST compliance. The retrospective application of key provisos has provided much-needed clarity, particularly regarding the levy of interest on the net cash liability. Taxpayers must be diligent in their filings and ITC claims to avoid attracting interest liabilities, which can significantly increase the financial burden of non-compliance. Understanding the nuances of “delayed payment” and “wrongful availment and utilisation” is paramount for all registered persons under GST.

FAQs on Section 50 of the CGST Act

What does Section 50 of the CGST Act deal with?
Section 50 covers interest liabilities for delayed GST payments and wrongful availment and utilisation of Input Tax Credit (ITC).

When did Section 50 come into effect?
It came into force on July 1, 2017, via Notification No. 9/2017-Central Tax dated June 28, 2017.

What is the interest rate for delayed GST payment under Section 50(1)?
The interest rate is up to 18% per annum, as notified by the government on GST Council recommendations.

Is interest under Section 50(1) payable on gross or net tax liability?
Post the Finance Act, 2021 amendment, interest is payable only on the net cash liability if the return is filed late, unless proceedings under Sections 73, 74, or 74A have been initiated.

What is the significance of the proviso added to Section 50(1)?
It clarified that interest is to be charged only on the cash portion of tax liability, with retrospective effect from July 1, 2017, except in specific proceedings.

What is the effect of the Finance (No. 2) Act, 2024, on Section 50?
It extended the exclusion of the net interest benefit to cases involving proceedings under the newly introduced Section 74A.

What is Section 50(2) about?
It specifies that interest should be calculated in the manner prescribed, starting from the day after the due date for tax payment.

What rule governs the manner of interest calculation under Section 50?
Rule 88B of the CGST Rules governs how interest is to be calculated under Section 50.

When does interest start accruing for late GST payments?
Interest begins from the day after the due date of payment, not from the date of actual filing or payment.

What does Section 50(3) address?
It deals with interest on wrongly availed and utilised Input Tax Credit (ITC).

What is the interest rate under Section 50(3)?
Interest under Section 50(3) can be up to 24% per annum for wrongly availed and utilised ITC.

Is interest applicable for wrongly availed but not utilised ITC?
No, interest is levied only if the ITC is both wrongly availed and utilised. Mere availment without utilisation may attract penalties but not interest under Section 50(3).

How is “utilisation” of wrongly availed ITC determined?
Utilisation occurs when the electronic credit ledger balance falls below the amount of wrongly availed ITC.

What is the date of utilisation for wrongly availed ITC?
It’s either the due date of the return or the actual filing date (whichever is earlier), or the date of debit in the electronic credit ledger, depending on the scenario.

Can the government change interest rates under Section 50?
Yes, the government can notify the applicable interest rates on the recommendations of the GST Council.

Does Section 50 apply retrospectively?
Yes, several amendments to Section 50, including interest on net liability and manner of calculation, have been applied retrospectively from July 1, 2017.

What is the key takeaway for taxpayers from Section 50?
Taxpayers should file returns timely and claim ITC correctly to avoid interest liabilities, especially since interest can be significant if rules are violated.

Are there any exceptions to the net interest benefit under Section 50(1)?
Yes, if proceedings under Sections 73, 74, or 74A are initiated, the benefit of interest only on net liability does not apply.

Is Rule 88B applicable retrospectively?
Yes, Rule 88B was inserted with retrospective effect from July 1, 2017.

What is Rule 88B(3) about?
It explains how to determine when wrongly availed ITC is considered utilised for interest calculation under Section 50(3).