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February 21, 2025

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GST Rules

GST Impact on Delayed Payment Fees and Penalties

Just like in school, where we wear uniforms, arrive on time, complete tasks, and follow a routine, citizenship comes with responsibilities. As citizens, we are like learners, understanding its rules and carrying out our duties. Just as schools set rules we must follow, our government enforces laws—including paying taxes like GST. Not following GST rules can cause real headaches—like late payment charges, penalties, or even legal trouble if things get serious. In some cases, it could even lead to jail time. Following tax laws ensures smooth governance, just as following school rules helps maintain discipline.

GST on Interest and Delayed Payment Charges – Simplified

Businesses set payment terms for customers, but delays can lead to interest or late fees. Here’s how GST applies to such charges with simple examples.

GST on Interest and Delayed Payment Fees

What the Law Says (Section 15 of CGST Act):

1. The value of supply includes interest, late fees, or penalties for delayed payments.

2. This means GST applies to interest or late fees charged on delayed payments at the same rate as the main product or service.

Example:

‍A furniture store sells a sofa for Rs.50,000 with 18% GST, making the total bill Rs.59,000 (Rs.50,000 + Rs.9,000 GST).

1. The customer has 30 days to make the payment but pays late after 40 days.

2. The store charges Rs.1,000 as interest for the delay.

3. Since the sofa was taxed at 18% GST, the Rs.1,000 interest will also be taxed at 18%.

Final Calculation:

1. Interest: Rs.1,000

2. GST on Interest (18%): Rs.180

3. Total amount payable: Rs.1,180 (Rs.1,000 + Rs.180 GST)

"Want to know more about Section 15 of the CGST Act? Click here to read this blog."

Clarification from Circular 178/10/2022-GST

What the Circular Says:

1. Late payment fees are part of the main supply (like electricity bills, telecom services, or property transactions).

2. GST applies to these charges at the same rate as the main product/service.

3. Exception: Closed and turned into cash damages are not taxable under GST because they don’t involve a supply.

Example:

‍A mobile company provides a postpaid connection and charges Rs.500 per month with 18% GST (Rs.90), so the total bill is Rs.590.

1. If the customer pays after the due date, the company charges a late fee of Rs.50.

2. Since the original bill was for a taxable service (telecom, 18% GST), the Rs.50 late fee will also attract 18% GST.

Final Calculation:

1. Late Fee: Rs.50

2. GST on Late Fee (18%): Rs.9

3. Total Amount Payable: Rs.59 (Rs.50 + Rs.9 GST)

However, if a company is fined for canceling a contract early and has to pay Rs.10,000 as a penalty, this is a liquidated damage, not a service, so GST will not apply to this amount.

"Want to know more about Circular 178/10/2022-GST Act”

GST on Interest for Different Property Transactions Example

Type of Property	GST on Property Sale	GST on Interest for Delayed Payments
Developed Plot (with roads, electricity, water, etc,)	12% or 18%	Same as GST Rate as Property
Raw land (without any development)	No GST Exempt	No GST on Interest

1. A real estate developer sells a developed plot for Rs.20 lakhs and applies a 12% GST of Rs.2.4 lakhs, bringing the total to Rs.22.4 lakh.

2. If the buyer delays payment, an interest charge of Rs.50,000 is added. Since GST also applies to interest at the same 12% rate, the tax on Rs.50,000 amounts to Rs.6,000.

Final Breakdown:

1. Interest: Rs.50,000

2. GST on Interest (12%): Rs.6,000

3. Total Payable: Rs.56,000 (Rs.50,000 + Rs.6,000 GST)

Another developer sells raw land for Rs.15 lakh. Since raw land is exempt from GST, any interest on delayed payment will also be GST-free.

What is GST Delayed Payment?

GST delayed payment is a charge for missing the deadline to file GST returns. Businesses must pay this fee daily until they submit their returns. This payment must be made in cash and cannot be adjusted using the Input Tax Credit (ITC) balance.

Difference Between Delayed Payment and Interest

1. Delayed payment applies only when GST returns are filed late.

2. Interest is charged not just for late GST payments but also for excess ITC use or short tax payments.

GST Due Dates Based on Taxpayer Type

Different taxpayers have different GST payment deadlines. Missing these deadlines results in delayed payment fees:

Taxpayer Type	Due Date
"Regular taxpayers (GSTR-3B)"	20th of the next month
"Composition Dealers (CMP-08)"	18th of the month after the quarter ends; annual return by April 30
"Non-resident distributors (GSTR-05)"	20th of the next month
"Input Service Distributors (GSTR6)"	13th of the next month
"TDS Deductors (GSTR-7)"	10th of the next month
"TCS Deductors (GSTR-8)"	10th of the next month

“To get to know more about GSTR files, types, and due dates you can read this blog here”

GST Delayed Payment Calculation

If you miss the due date, the delayed payment depends on the type of GST form filed:

GST Form	Who files?	Delayed Payments
GSTR-3B	All registered taxpayers	a. Rs 20 per day (CGST Rs 10 + SGST Rs 10 ) for no transactions, max; b. Rs 500 Rs 50 per day (CGST Rs 25 + SGST Rs 25 ) for other cases, max. Rs 10,000
GSTR-1	Taxable supplier filing details of sales	Rs 200 per day (CGST Rs 100 + SGST Rs 100)
GSTR-9,9A	Registered taxpayers filing annual returns	Rs 200 per day, max. 0.50% of turnover
GSTR-9C	Businesses with a turnover of Rs 5 crore	Rs 200 per day, max. 0.50% of turnover
GSTR-10	Taxpayers whose GST Registration is cancelled	Rs 200 per day with no maximum limit

Interest on Late GST Payments:

If GST isn’t paid on time, an 18% annual interest is charged from the due date until payment.

Example:

A taxpayer owes Rs.50,000 in GST due on June 20 but pays on July 10. Interest for 20 days will be: (Rs. 50,000 x 18% x 20) / 365 = Rs. 493

GST Penalties for Missing Deadlines

In addition to delayed payment fees and interest, penalties apply for missing GST due dates. The maximum penalty is Rs. 5,000, along with 18% annual interest on unpaid GST.

Example:

If a business fails to file returns on time, a penalty of Rs. 50 per day applies (Rs. 25 for CGST + Rs. 25 for SGST). For zero tax liability, the charge is Rs. 20 per day. However, the maximum penalty is Rs. 5,000.

IGST Exception

Integrated GST (IGST) does not attract delayed payment fees if return filing is delayed.

Offenses and Penalties Under GST

Offenses

The GST law outlines 21 different offenses under Section 122(1) of CGST, some of which are:

1. Failing to register under GST despite being required by law.

2. Supplying goods/services without issuing an invoice or issuing a false one.

3. Generating invoices without actually supplying goods or services.

4. Collecting GST but failing to deposit it with the government within three months.

5. Not deducting or collecting TDS/TCS, or doing so incorrectly.

6. Claiming Input Tax Credit (ITC) without receiving goods or services.

7. Using another taxpayer’s GSTIN fraudulently.

8. Providing false information during GST registration.

9. Submitting fake financial records or documents to evade tax.

10. Fraudulently claiming refunds.

11. Suppressing sales or turnover to avoid tax liability.

12. Wrongly opting for the composition scheme despite being ineligible.

13. Preventing GST officers from performing their duties.

14. Transporting goods without proper documents.

15. Dealing with goods that are subject to confiscation.

16. Tampering with evidence or destroying documents related to GST violations.

Penalties

If any of these offenses are committed, penalties are imposed based on GST laws:

Delayed Filing of GST Returns

1. A delayed payment/fee of Rs. 50 per day (Rs. 25 under CGST and Rs. 25 under SGST) for late filing of GSTR-3B.

2. No delayed fee on IGST.

3. 18% annual interest on unpaid tax, calculated daily from the due date until payment.

Non-Filing of GST Returns

1. A delayed payment/fee of Rs. 20 per day (Rs. 10 under CGST and Rs. 10 under SGST) for late filing of GSTR-3B.

2. Non-filing prevents subsequent returns from being filed, leading to cascading penalties and fines.

Offenses Without Fraud or Tax Evasion

1. A penalty of 10% of the unpaid tax (minimum Rs. 10,000).

Offenses With Fraud or Tax Evasion

A penalty of 100% of the tax evaded (minimum Rs. 10,000), along with potential imprisonment and fines:

1. Tax evasion of Rs. 1-2 crore: Up to 1-year jail term

2. Tax evasion of Rs. 2-5 crore: Up to 3-year jail term

3. Tax evasion above Rs. 5 crore: Up to 5-year jail term

4. Fine applicable in all cases

Conclusion

Businesses should make sure to file GST on time and keep proper, accurate records. Otherwise, they might face complications like penalties or legal trouble. Staying informed about GST rules can help avoid unnecessary hassles.