The GST payment process

Avalara

Indian businesses are in for a learning curve — the payment process under Goods and Services Tax (GST) differs drastically from current procedures. Namely, each step of the process — like all other aspects of GST — now occur online within the GST portal.

Section 49 of the Central Goods and Services Tax Act, along with rules published by the Central Board of Excise and Customs (CBEC), govern the new payment procedures. This whitepaper provides an overview of what they entail and looks at the following:

  • Electronic ledgers
  • Manner of utilization and cross-utilisation of input tax credit (ITC)
  • Interest on delayed payments
  • Electronic payment forms
  • Unique identification number for each transaction

Electronic ledgers

In the GST portal, a taxable person can track his tax liabilities across three ledgers, each maintained in real-time:

  1. Electronic liability ledger (also known as electronic tax liability register): Accounts for a taxpayer’s gross tax liability — form GST PMT-01 on the GST portal
  2. Electronic credit ledger (also known as electronic input tax credit ledger): Records the tax payments already made during the supply chain e. every claim of ITC is recorded here — form GST PMT-02
  3. Electronic cash ledger: All amounts paid by the taxpayer are reflected here — form GST PMT-05

Let’s analyze each one in more detail.

Electronic liability ledger

This ledger records all liabilities of a taxable person including:

  • The tax, interest, late fees, or any other amount payable per the return furnished by the taxpayer or per any proceedings
  • The tax and interest payable arising out of any mismatch of ITC or output tax liability
  • Any interest that may accrue from time to time
  • The reversal of ITC or interest

Taxpayers should settle their liabilities in the following order:

  1. Self-assessed tax and other dues, such as interest, penalty, fees, or any other amount relating to previous tax period returns
  2. Self-assessed tax and other dues relating to the current tax period return
  3. Any other amount payable under the act/rules (liability arising out of demand notice, proceedings, etc.)

Electronic credit ledger

Every claim of ITC self-assessed by the taxpayer shall be credited to this ledger. The amount available in this ledger may be used for payment towards output tax only. Under no circumstance can an entry be made directly in the electronic credit ledger.

This ledger may include the following:

  • ITC on inward supplies from registered taxpayers
  • ITC available based on distribution from input services distributor (ISD)
  • ITC on input of stock held/semi-finished goods or finished goods held in stock on the

day immediately preceding the date on which the taxpayer became liable to pay tax, provided he applies for registration within 30 days of becoming liable

  • Permissible ITC on inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the day of conversion from composition scheme to regular tax scheme
  • ITC eligible on a payment made on a reverse charge basis

Electronic cash ledger

Any amount paid by the taxpayer will be reflected in the electronic cash ledger. The amount available in this ledger may be used for making any payment towards tax, interest, penalty, fees, or any other amount due under the act/rules in the time and manner prescribed. (It is reiterated that any credit in the electronic credit ledger can be utilized only for payment of output tax.)

To initiate a payment, taxpayers generate a challan online using form GST PMT-06, which will be valid for a period of 15 days. Payment can then be remitted through any of the following modes:

  • Internet banking (authorized banks only)
  • Credit or debit card (authorized banks only)
  • National Electronic Fund Transfer (NEFT) or real-time gross settlement (RTGS) (any bank, authorized or unauthorized)
  • Over-the-counter (OTC) payment (authorized banks only) for deposits up to ten thousand rupees per challan and per tax period

The taxpayer is responsible for any commission due on the payment.

The payment date shall be recorded as the date the payment is credited to the appropriate government account. The date, the payment is debited from the taxpayer’s account is not relevant.

Unregistered taxpayers needing to make a tax payment will still use the online GST portal but with a temporary identification number generated through the portal.

Manner of utilization and cross-utilisation of ITC

The input tax credit available in the electronic credit ledger shall be utilized in the following manner:

Input tax on Utilisation (in the order shown)
IGST IGST CGST SGST/UTGST
CGST CGST IGST
SGST/UTGST SGST/UTGST IGST

From the above table, it is evident that central tax shall not be utilized towards payment of state tax or union territory tax; and state tax or union territory tax shall not be utilized towards payment of central tax.

Interest on delayed payments

Per Section 50 of the CGST Act, interest will start accruing on a delayed payment the day after the payment was due. This applies to both missed payments and payments not made in full.

The payment of interest is automatic and should be made voluntarily, even without a demand. The interest rate, not to exceed 18 percent, will be determined by the Government on the recommendation of the GST Council.

In the case of undue or excess claim of ITC, or undue or excess reduction in output tax liability, interest shall be paid at a higher rate, not to exceed 24 percent, to be notified by the Government.

GST payment forms

Sr. no. Form no. Short description Purpose
1 GST PMT-01 Electronic tax liability register Any tax, interest, penalty, late fee, or any other amount will be debited to this register
2 GST PMT-02 Electronic credit ledger Every claim of ITC shall be credited to this ledger
3 GST PMT-03 Refund to be recredited Refund if rejected the amount debited from the electronic credit ledger or electronic cash ledger, as the case may be, will be recredited by order of a proper officer
4 GST PMT-04 Discrepancy in electronic credit ledger Discrepancy in electronic credit ledger, communicated to an officer through this form
5 GST PMT-05 Electronic cash ledger Any tax, interest, penalty, late fee, or any other amount to be deposited in cash are credited to this ledger
6 GST PMT-06 Challan for deposit of tax Generate and pay a challan
7 GST PMT-07 Application for intimating discrepancy relating to payment The application is meant for the tax payer where the amount intended to be paid is debited from his account but CIN has not been conveyed by bank to Common Portal or CIN has been generated but not reported by concerned bank (within 24 hours of debit)”

Additional points to ponder

Whenever a payment of any liability is made, the electronic credit ledger or the electronic cash ledger shall be debited; the electronic tax liability register shall be credited and will display the monthly net tax liability.

Every person who has paid tax on goods and/or services shall be deemed to have passed on the full incidence of such tax to the recipient unless he proves the contrary.

The balance in the electronic cash ledger or electronic credit ledger after payment of tax, interest, penalty, fees, or any other amount payable may be refunded from electronic cash or electronic credit ledger, respectively.

If a refund claim is rejected, either fully or partly, the amount debited, to the extent of rejection, shall be re-credited to the electronic cash ledger or electronic credit ledger by the proper officer.

Unique identification number for each transaction

Within the online GST portal, a unique identification number shall be generated for each debit or credit to the electronic cash or credit ledgers, as the case may be. This number shall be indicated in the corresponding entry on the electronic tax liability register.

To conclude, there is a paradigm shift in the way tax payments will be made in the soon-to-be-in-force GST, as compared to the methods to which we have become accustomed. The shift helps to support GST’s aim to make the entire tax process run smoothly with minimal government involvement — all with the aid of technology.

Avalara is an experienced application service provider (ASP) and partner of authorized GST Suvidha Providers (GSPs). To understand how our cloud-based application Avalara TrustFile GST can help you with GST compliance automation, contact us through https://www.avalara.com/in/products/gst-returns-filing.

This whitepaper is authored by CA Priya Madrecha. Priya is a CA, CS by profession and Partner at Madrecha & Co. in Mumbai. She is a moderator at gstindia.net, a forum on Goods and Services Tax. An ex-consultant at KPMG, she specializes in indirect taxation.

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