GST: Interest on differential output liability declared in subsequent months

The implementation of GST in India has changed the way businesses operate. With the introduction of GST, businesses need to be more cautious while filing their returns as any discrepancy can lead to hefty fines and penalties. One such scenario is when a business declares a lower output liability in a particular month and subsequently declares a higher output liability. In such cases, the GST law prescribes the payment of interest on the differential amount.

Let us understand this concept in detail.

What is an output liability?

Output liability is the amount of GST a business collects from its customers while making a sale. It is the tax liability on the output supplies made by the business. The tax collected on the output supplies is known as output tax. It is calculated by applying the applicable tax rate on the value of the goods or services supplied.

What is differential output liability?

Differential output liability arises when a business declares a lower output liability in a particular month and subsequently declares a higher output liability in the subsequent month. For example, if a business declares an output liability of Rs. 10,000 in the month of January and subsequently declares an output liability of Rs. 15,000 in the month of February, then the differential output liability is Rs. 5,000 (i.e., Rs. 15,000 - Rs. 10,000).

What is the interest on differential output liability?

As per the GST law, a business is liable to pay interest on the differential output liability declared in subsequent months. The interest is calculated at the rate of 18% per annum on the differential amount. The interest is calculated from the date on which the tax was due to be paid till the date on which the tax is actually paid.

How is the interest on differential output liability calculated?

Let us take an example to understand the calculation of interest on differential output liability.

Suppose a business has an output liability of Rs. 10,000 in the month of January and subsequently declares an output liability of Rs. 15,000 in the month of February. The differential output liability is Rs. 5,000 (i.e., Rs. 15,000 - Rs. 10,000). The due date for payment of tax for the month of January is 20th February.

Assuming that the business pays the differential output liability on 15th March, the interest on the differential output liability will be calculated as follows:

Interest = Differential output liability x Rate of interest x (Number of days delay / 365)

Number of days delay = 23 days (from 20th February to 15th March)

Interest = 5,000 x 18% x (23 / 365) = Rs. 150

Conclusion

To conclude, businesses need to be careful while filing their returns and must ensure that the output liability declared is accurate. Any discrepancy in the output liability can lead to the payment of interest on differential output liability. Hence, businesses must maintain proper records of their transactions and ensure that they comply with the GST law.