Interest Calculator In GSTR-3B Explained

The monthly return form GSTR-3B is essential for all registered taxpayers under India’s Goods and Services Tax (GST) regime. It is a comprehensive summary of all outward and inward supplies made during a particular tax period, including tax liability and input tax credit (ITC) claimed. The Interest Calculator tool within the GSTR-3B form is an important feature that assists taxpayers in determining their interest liability in the event of late filing or payment of taxes. 

This article will explain the Interest Calculator in GSTR-3B, its calculation method, and applicable interest rates for various scenarios. Additionally, it provides step-by-step instructions on using the Interest Calculator effectively to avoid any potential penalties or interest charges. By understanding the significance of the Interest Calculator in GSTR-3B, taxpayers can ensure they meet their tax obligations timely and efficient while avoiding unnecessary costs.

What is an Interest Calculator In GSTR 3-B Functionality?

The IT infrastructure of the indirect tax system has undergone several changes, mainly due to the implementation of the GST Network (GSTN). One of the significant modifications made is the addition of an interest calculator, which allows taxpayers to calculate interest on late tax payments.

This new functionality will automatically calculate the interest due on late tax payments based on the data submitted in GSTR-3B for a specific tax period. The interest will be charged on the net production tax amount that remains unpaid or on the amount of tax paid by debit to the electronic cash ledger.

Taxpayers can confirm and discharge their interest liability as per the legislation. The interest amount for late payments will be reflected in GSTR-3B for the subsequent period.

Background to Auto Population of System Computed Interest

Section 50 of the CGST Act 2017 stipulates that interest will be charged on any GST liability paid late for a specific period. Interest is calculated on the net GST liability after deducting the applicable input tax credits from the total output tax. This implies that the cash amount paid to satisfy the GST due will be subject to interest calculations.

The interest is calculated from the day after the filing deadline to the day of tax payment, per the Act. The government determines the interest rate cannot exceed 18% p.a. The current interest rate on late tax payments is set at 18% p.a.

Before implementing this technology, taxpayers were required to determine their interest liability on delayed tax payments and discharge their liabilities. This was a challenging task as taxpayers could not accurately calculate their actual interest liabilities. Since interest was only calculated on a self-assessment basis, some taxpayers avoided paying the interest amount.

Changes on GST Portal in Interest Calculation  

Interest will be calculated only on the taxes paid by debiting the electronic cash ledger for supplies made during the current tax period. However, interest will be calculated on the entire liability for any prior tax liabilities reported in GSTR-3B for a specific period. To ensure the proper discharge of GST liabilities, the GST portal has implemented the following adjustments:

• Introduction Off Tax Liability Breakup:

• Taxpayers can now use this feature to provide a tax period-wise breakdown of the net GST liability paid. To provide this breakdown of payments made towards GST liability in Form GSTR-3B, taxpayers must select the new “Tax Liability Breakup, As Applicable” button.
• This button will become available after the liability has been paid. It enables taxpayers to allocate the overall liability towards the appropriate tax periods if the GST due for a specific tax period includes liabilities from prior tax periods.
• Taxpayers must use this feature to disclose the breakdown of their tax liabilities by period, as failing to do so can result in incorrect interest calculations. Interest will be calculated on the due amount if the tax liability is for the current period.

• Interest Calculation:

• With the new interest calculator, interest will be automatically calculated and presented in the return. Previously, taxpayers had to enter self-assessed interest in GSTR-3B of the next period.
• Interest will be calculated for each tax month based on the breakdown of the tax burden reported in the previous return. The following formula will be used to calculate interest on overdue tax obligations for each period:

Interest Liability = Tax liability × (Number of days from the due date till the actual date of filing/Number of days in a year) × Interest rate.

The taxpayer can verify the auto-computed interest and the total interest. The taxpayer can modify the interest calculated before releasing the obligation if necessary. However, if the interest amount is edited lower, the system will display a warning notice. Despite this warning, the taxpayer will be allowed to file the return.

• The interest calculator tool won’t affect taxpayers who haven’t paid any back taxes in the past periods.

Example of How Interest Calculation in GSTR 3-B Works

• In form GSTR-3B, the taxpayer submits all output tax liabilities, including those from previous quarters, and any qualifying input tax credits. The taxpayer has the option to settle their GST obligations. The “Tax Liability Breakup, As Applicable” button will be available once the taxpayer has paid the liability.

• Clicking this button will allow taxpayers to declare their paid GST liability breakdown by period. The taxpayers will report the breakup. Once the split has been submitted, the sum of all the periods must match the total GST liability paid in that return.

• After making the necessary declarations and pressing the save button, the taxpayer can move on to file the return.

• The late fines due and interest on overdue tax payments will automatically reflect in the return for the following period after the return has been filed.

• The interest shall be determined in accordance with CGST Act, 2017, section 50. Interest is automatically computed and displayed in Table 5.1 of GSTR-3B, Interest and late charge for the prior tax period. The corresponding cells will reflect the entire amount of interest calculated for each tax period.

• The taxpayer may still proceed and submit the return despite the warning.

Conclusion 

The Interest Calculator in GSTR-3B is a critical tool for taxpayers to ensure compliance with GST regulations and avoid penalties or interest charges. It accurately calculates the interest liability, which is essential to prevent discrepancies in tax payments. Taxpayers should utilise this tool and stay up-to-date with the latest interest rates and guidelines to avoid non-compliance issues. Timely and proper filing of returns can help businesses maintain their credibility and reputation in the market.