Understanding the Levy of Interest on Inadmissible (ITC) in GST

Levy Of Interset On Inadmissible ITC in GST: Almost every taxpayer at some point has taken excess input tax credit in GST filling and as it was a disputable topic till now there was no interest liability as per experts but now CBIC has clarified all the issues related to this which we are going to refer in this blog

What is Inadmissible ITC?

The Input tax credit can be inadmissible due for any reason such as:

• • ITC Not reflecting in 2A/2B due to non-filling of GSTR-1/IFF by supplier as per sec 36(4) but ITC has been taken by taxpayer
  • Taxpayer don’t have invoices and also haven’t received the goods or services or any of those not properly fulfilled but ITC has taken
  • Any input taken by taxpayer (but later proved as ineligible)
  • Any input is taken from the negative list as per sec 17(5)

HOW / WHEN INTEREST WILL BE LIABLE? On the Availment or on the utilization??

CBIC has clarified that if the taxpayer has only availed the inadmissible ITC then no interest liability is to be paid by the taxpayer but if the taxpayer has availed and also utilized the inadmissible ITC then the interest liability is to be paid by the taxpayer.

RATE/PERCENTAGE %

It was also a very confusing topic for taxpayers to pay the interest liability on which percentage so CBIC has clarified that the percentage of interest on inadmissible ITC shall be 18% p.a and will be applicable respectively from the 1st July 2017.

Legal Provisions and Guidelines for Inadmissible ITC

When it comes to the concept of inadmissible Input Tax Credit (ITC) in GST, there are specific legal provisions and guidelines that businesses need to be aware of. The GST law lays down clear provisions regarding the eligibility and utilization of ITC. It defines the types of transactions and expenses for which ITC is not admissible, such as certain goods and services that are used for non-business purposes or are specifically excluded from the purview of ITC. Additionally, the law outlines the documentation requirements and the need for proper tax invoices and supporting documents to claim ITC. Businesses must adhere to these provisions and guidelines to ensure compliance and avoid any implications related to inadmissible ITC. Staying up to date with the legal provisions and guidelines is crucial to maintain the integrity of ITC claims and prevent any potential penalties or interest liabilities.

Calculation of Interest on Inadmissible ITC

The calculation of interest on inadmissible Input Tax Credit (ITC) in GST follows a specific methodology outlined by the tax authorities. When a business avails and utilizes ITC that is later determined to be inadmissible, interest is levied on the amount of such ITC. The interest is calculated from the date of availing the inadmissible credit until the date of reversal or payment of the inadmissible amount.

To calculate the interest on inadmissible ITC, the following formula is generally used:

Interest = Inadmissible ITC × Number of Days × Rate of Interest / 365

The “Inadmissible ITC” refers to the amount of ITC claimed that is later found to be ineligible as per the provisions of GST law. The “Number of Days” represents the period between the date of availing the inadmissible credit and the date of reversal or payment. The “Rate of Interest” is specified by the tax authorities and may vary depending on the applicable regulations and the jurisdiction.

It is important for businesses to carefully assess the eligibility of ITC and promptly reverse any inadmissible amounts to avoid interest liability. Proper record-keeping and documentation are essential to demonstrate compliance and facilitate the calculation of interest accurately. Consulting with a Chartered Accountant (CA) or tax professional can provide further guidance on the specific rules and procedures for calculating interest on inadmissible ITC in accordance with the prevailing GST regulations.