What is the Penalty and Interest on Late Payment of GST?

The Goods and Services Tax (GST) regime in India has brought a streamlined approach to indirect taxation. With its unified structure and digital compliance model, GST has significantly enhanced the efficiency of tax collection. However, businesses and individuals registered under GST must strictly adhere to timely filing and payment obligations. Failure to do so results in penalties and interest charges, which can accumulate rapidly and cause financial strain. Understanding the implications of late GST payments is essential for avoiding unnecessary costs and ensuring smooth operations. Enrolling in GST Training in Chennai at FITA Academy can provide valuable insights into GST compliance and help businesses navigate the complexities of the tax system effectively.​

Understanding GST Payment Deadlines

GST payments are due monthly or quarterly, depending on the type of taxpayer. Regular taxpayers are required to file GSTR-3B monthly and pay the tax due by the 20th of the following month. Composition scheme taxpayers file CMP-08 quarterly, and Input Service Distributors (ISD), TDS and TCS deductors, and other specialized taxpayers have their respective return dates.

Late payment not only causes interest to accrue but also results in penalties and can affect the eligibility for claiming input tax credit (ITC). The government has provided strict provisions under the CGST Act, 2017 to discourage delays and ensure prompt compliance.

Interest on Late Payment of GST

Interest is charged under GST when a taxpayer fails to pay the due amount within the prescribed time. The applicable interest rate depends on the nature of the default:

• 18% per annum: This is the most commonly applicable interest rate, levied for delayed payment of tax. If a business fails to pay the tax liability declared in its GSTR-3B return on time, interest at 18% is charged from the due date till the actual payment date.
  

• 24% per annum: This rate applies when a taxpayer makes an excess claim of Input Tax Credit or reduces their output tax liability incorrectly. The higher rate serves as a punitive measure for such practices.
  

Interest is calculated on the net tax liability, which means the tax payable in cash after adjusting eligible ITC using the right tally version for GST. It is computed on a daily basis, and even a single day’s delay results in an interest charge.

For example, if a taxpayer delays payment of ₹1,00,000 in GST by 10 days, the interest would be: (₹1,00,000 × 18% × 10) ÷ 365 = ₹493.15

Penalty for Late Payment

Apart from interest, GST law imposes penalties for non-compliance, which are more severe in nature:

• Late Fee for Filing Returns: If the delay is due to late filing of returns (GSTR-3B or GSTR-1), a late fee is levied under Section 47 of the CGST Act.
  

• ₹50 per day (₹25 under CGST and ₹25 under SGST) for late filing of returns.
  

• ₹20 per day (₹10 under CGST and ₹10 under SGST) if there is nil tax liability.
  

The maximum late fee for a return period is ₹5,000 under CGST and SGST each, totaling ₹10,000. While this may seem manageable initially, late fees can add up quickly over multiple months or missed filings.

• General Penalty: As per Section 125 of the CGST Act, a general penalty of up to ₹25,000 can be imposed for contravention of provisions, where no specific penalty is prescribed.
  

• Penalty for Fraudulent Activity: If the late payment is accompanied by fraud, willful misstatement, or suppression of facts to evade tax, a penalty of 100% of the tax amount or ₹10,000, whichever is higher, may be levied under Section 122.
  

Consequences of Non-Payment

In addition to monetary penalties and interest, late payment of GST can have several indirect consequences:

• Blocking of E-Way Bill Generation: Businesses with pending returns for over two consecutive tax periods may be restricted from generating e-way bills. This disrupts logistics and supply chain operations.
  

• Restriction on Input Tax Credit (ITC): ITC cannot be claimed on invoices if the supplier has not filed returns or paid tax. Delay in compliance by one party can affect others in the supply chain.
  

• Cancellation of GST Registration: Persistent non-compliance, including continuous late payment or non-filing, can lead to cancellation of GST registration, which will severely affect business continuity.
  

• Legal Action: In cases of deliberate evasion or repeated default, the tax department may initiate audit, assessment, or prosecution proceedings.
  

Relief and Waiver Provisions

Recognizing that genuine errors or circumstances beyond control may lead to delay, the GST law provides certain relief mechanisms:

• Waiver of Late Fees: The government occasionally announces waivers or reductions in late fees during exceptional situations, such as the COVID-19 pandemic. These notifications are time-bound and provide relief for specific return periods.
  

• Interest Amnesty Schemes: In rare cases, interest rates have been reduced for a specified time period to help businesses cope with hardships.
  

• Rectification Options: If returns have been filed late due to clerical or technical errors, taxpayers may approach the jurisdictional officer to seek relief or correction.
  
  

Best Practices to Avoid Penalty and Interest

To avoid penalties and interest charges, businesses can adopt the following practices:

• Set Reminders for return filing and payment due dates.
  

• Automate Compliance using GST accounting software or cloud-based ERP systems.
  

• Reconcile ITC with GSTR-2B monthly to avoid incorrect credit claims.
  

• Maintain Adequate Funds to ensure timely payment of tax liability.
  

• Track Notifications from the GST portal to stay informed of changes in due dates or compliance rules.
  

Consistent compliance not only saves money but also builds credibility with vendors, customers, and tax authorities.

Late payment of GST comes with significant financial consequences in the form of interest and penalties. While the law provides structured guidelines on how these are calculated and applied, businesses must focus on timely compliance to avoid these charges. Beyond the monetary aspect, consistent compliance helps maintain a company’s legal standing and operational efficiency. Leveraging digital tools, maintaining accurate records, and staying updated with GST regulations are crucial steps in preventing late payments. Understanding the penalties and interest framework empowers businesses to manage their tax responsibilities more effectively and avoid unnecessary financial burdens. Enrolling in a Training Institute in Chennai can provide professionals with the necessary knowledge and skills to navigate GST compliance effectively.​

Also Read: What Are the Key GST Compliance Requirements for Businesses?