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Saturday, July 9, 2022

Interest on ITC Reversals under GST

Interest on ITC Reversals under GST

After the recommendations of 45th GST Council Meeting, there was some clarity about interest on ITC reversals. It says

In the spirit of earlier Council decision that interest is to be charged only in respect of net cash liability, section 50(3) of the CGST Act to be amended retrospectively, w.e.f. 01.07.2017, to provide that interest is to be paid by a taxpayer on “ineligible ITC availed and utilized” and not on “ineligible ITC availed”. It has also been decided that interest in such cases should be charged on ineligible ITC availed and utilized at 18% w.e.f. 01.07.2017.

So, interest on ITC reversals will now be calculated:

  1. on ineligible ITC availed and utilized
  2. at 18% rate of interest as per section 50(3) (to be amended retrospectively, w.e.f. 01.07.2017)

It was later confirmed via Notification No. 09/2022 Central Tax dated 05 July 2022 which refers to Section 110 of Finance Bill 2022 (Budget 2022). Which is precisely about amending section 50(3) of CGST Act to add "Availed and Utilized" instead of "Availed or Utilized".

📝 Note: If ineligible ITC is availed but not utilized then interest cannot be demanded for ITC reversals.

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