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Every paisa counts for GST Collection

  • Jun 2, 2020 | Divita S Gupta

Late fees and interest generated from late liability fees form an integral part of the Goods and Services Tax payment system in India. These charges are borne by taxpayers in case of delay in submitting or filing their GST returns. Because a number of taxpayers are still adapting to the GST system, they are defaulting on the due dates and extensions set by the Government and therefore, must bear the late liability charge.

While the above is a standard procedure and the Government has predefined charges classified by the type of return and the degree of the delay, the late liability charges have recently stirred the interest of taxpayers because of an interesting announcement by the Government.

It is not news that India is struggling to meet its GST targets, and with February and March being significant tax months, the GST collection target for February and March was recently revised to Rs 1.15 lakh crore. With such high targets, pressure from States to pay their respective GST compensation and the ever imaginative brand of tax evaders, every single paisa counts under GST collections.

Earlier in February, the Central Board of Indirect Taxes and Customs (CBIC) directed principal chief commissioners and chief commissioners to begin recovery of nearly Rs 46,000 crore of unpaid interest on delayed goods and services tax payments. The interest payable on delayed payment of tax can be recovered under the provisions of section 79 of the CGST Act read with section 75(12) which provides for various methods by which tax authorities can recover any amount payable to the Government. What taxpayers didn't realise is that the Government literally means any amount of money, even a sum as low as Rs.2.

Since the period of unpaid interest begins from the time the goods and services tax was first implemented and goes on till date, defaulters who have received notices from the Government have been asked to cough up money as little as Rs.2. Why is this happening? Apart from a late payment fee of Rs 100 a day for central GST and a matching amount for state GST, the law also provides for a levy of 18% penal interest. As per GST law, taxpayers can pay a part of the liability in cash and utilise their input tax credit to settle their dues. This is a self-assessment exercise, and while large taxpayers calculated their liability and paid their dues, smaller taxpayers haven't shown the Government this courtesy. Naturally, this situation has snowballed, and the Government is now looking at the recovery of Rs. 46,000 crore in unpaid interest on delayed GST.

In light of the recent orders from the Government to recover this unpaid interest, notices have been sent to defaulting taxpayers across the country. In one such notice sent to a brokerage firm, the notice reads: "Records indicate that you have filed your GSTR-3B return for the period 2019-20 after due dates, in which you have not calculated and paid your interest liability under section 50 of the CGST Act, 2017. You are advised to deposit the interest amount of Rs 5.9858630140000004, calculated as per provisions of section 50 of the CGST Act, 2017."

The irony here is that the Goods and Services Tax system uses a 16 point decimal system for its calculations while the banking system which will be used to make the interest payments only recognises a 2 point decimal system. According to RBI regulations, all transactions including the payment of interest on deposits/charging of interest on advances, should be rounded off to the nearest rupee viz. fractions of fifty paise and above shall be rounded off to the next higher rupee and fractions of less than fifty paise shall be ignored. Yet in a bid to make the most of every paisa, tax authorities have sent computer-generated notices (and probably spent more in doing so) demanding ridiculously low amounts, some even amounting to a few paise - all in a bid to reach their targeted revenue goal.


Avalara helps businesses of all sizes get GST return filing, e-way bill generation and e-invoicing right with cloud-based GST compliance solutions in India. Goods and Services Tax (GST) rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Avalara Author
Divita S Gupta
Avalara Author Divita S Gupta
Divita has served as a writer and editor for top financial services organizations in India. She has written on topics like mutual funds, insurance, taxes, SME financing for globally recognized banking and financial organizations including ICICI, Aditya Birla Group, News Corp. With a Masters in Business Administration from Symbiosis International University, she currently owns a small business in Mumbai.