Interest on Electronic Cash Ledger Balance Under GST - Burning Issue?

The implementation of the Goods and Services Tax (GST) in India has brought a lot of changes in the taxation system. One of the most concerning issues for Indian small and medium business owners and startup founders is the interest on electronic cash ledger balance under GST. The burning question is, why is there an interest on the electronic cash ledger balance, and how does it affect small and medium business owners and startup founders in India?

Firstly, let's understand what an electronic cash ledger is. It is a digital account where taxpayers deposit the cash electronically to pay their GST liability. The tax department uses this account to credit the tax paid by the taxpayer, which can be used to offset future liabilities. If there is an excess balance in the electronic cash ledger, the taxpayer can claim a refund of the same.

Now coming back to the crucial question, why is there an interest on the electronic cash ledger balance? The government introduced the interest on electronic cash ledger balance to prevent businesses from holding excessive funds in their electronic cash ledger accounts. The interest is charged at 18% per annum on the excess amount that remains unutilized in the electronic cash ledger account.

Small and medium business owners and startup founders in India face several issues due to the interest charged on the electronic cash ledger balance. One of the primary concerns is the cash flow problem. When businesses deposit the GST tax payment in advance, they cannot use this amount for business operations until they have a tax liability. The interest charged on the excess balance in the electronic cash ledger account is an additional burden on the businesses, leading to cash flow issues.

Another problem faced by small and medium business owners and startup founders is the complexity in calculating the interest amount. Businesses have to keep track of the balance in their electronic cash ledger account to avoid overpayment and calculate the interest amount accurately. Failure to pay the interest on the excess balance in the electronic cash ledger account can result in penalties and fines.

The interest on the electronic cash ledger balance can also impact businesses that have a seasonal nature of operations. For example, if a business has higher sales during the festive season but lower sales during the rest of the year, they may have an excess balance in their electronic cash ledger account. The interest charged on the excess balance can be a burden on the business during off-seasons.

In conclusion, the interest charged on the electronic cash ledger balance under GST is a burning issue for small and medium business owners and startup founders in India. The interest can lead to cash flow problems, complexity in calculation of the interest amount, and can impact businesses with seasonal operations. The government should consider revising this policy to ease the burden on businesses and improve the overall ease of doing business in India.