February 23, 2023

Interest on Delayed Payment/ Reversal of ITC of GST: A Comprehensive Guide

GST (Goods and Services Tax) is a tax that India implemented in 2017, to replace all the indirect taxes that were levied on goods and services. It is a consumption-based tax that is levied on the value of goods and services sold and consumed. Under GST, businesses are required to file regular returns and pay taxes on time. Failure to do so can result in penalties, interest on delayed payment, and even revocation of GST registration.

Interest on Delayed Payment

Interest on delayed payment is one of the consequences of delayed payment of GST. If a business fails to pay their GST dues within the due date, they are liable to pay interest on the amount due. The rate of interest is calculated as a percentage of the amount due, and it is calculated on a monthly basis. The interest rate is currently set at 18% per annum.

It is important to note that interest on delayed payment is not a penalty. It is a charge that is levied to compensate the government for the delayed payment of GST. As such, interest on delayed payment cannot be waived or reduced by the government, and it is the responsibility of the business owner to ensure that they pay their dues on time.

Reversal of Input Tax Credit (ITC)

Input Tax Credit (ITC) is a credit that businesses can claim on the GST paid on inputs (raw materials, goods, and services) used in the production of goods and services. ITC can be claimed as a credit against the GST payable on the output (sale) of goods and services. This means that businesses can reduce their GST liability by claiming ITC.

However, there are certain conditions that need to be met in order to claim ITC. If these conditions are not met, the ITC claimed can be reversed, and the business will be liable to pay the reversed ITC with interest.

The conditions for claiming ITC are:

1. The goods or services on which the ITC is claimed must be used for the furtherance of business.

2. The ITC must be duly reflected in the GST returns filed by the business.

3. The supplier of the goods or services must have paid the GST to the government.

If any of the above conditions are not met, the ITC claimed can be reversed, and the business will be liable to pay the reversed ITC with interest. The rate of interest for reversal of ITC is also 18% per annum.


Interest on delayed payment and reversal of ITC are serious consequences of non-compliance with GST regulations. It is important for small and medium business owners, and startup founders, to be aware of these consequences and ensure that they comply with GST regulations. Failing to comply with GST regulations can result in severe financial implications for your business. So stay informed, stay compliant, and ensure the success of your business.


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