Compliance
Section 50 of the CGST Act imposes interest at 18% per annum on any GST that is paid after the due date, and also on wrongly claimed input tax credit that has been used, so businesses must track dates, calculate interest and keep records to avoid additional costs.
Check your DPDP readiness — free More on the blogThe first task is to note when a GST liability becomes overdue. This occurs the day after the prescribed due date for the tax period. The same logic applies when an input tax credit is wrongly availed and actually utilised; the date of utilisation starts the interest clock. Recording these dates in the accounting system is essential because interest is calculated from them until payment or reversal.
Once the overdue amount is known, compute interest at the statutory rate of 18% per year. Use the simple interest formula: Principal multiplied by 0.18 and then by the fraction of the year the amount remained unpaid. The calculation must be done for each day of delay, but most small businesses round to the nearest month for practicality, provided the result does not understate the liability.
The interest on wrongly used credit follows the same 18% rate, but it only starts when the credit is used, not when the return is filed. If the credit was never utilised, no interest accrues. This distinction must be reflected in the GST reconciliation worksheet that the finance team prepares each month.
The finance officer should create a journal entry that debits GST payable and credits an interest expense account. The entry must include a reference to Section 50, the period of delay, and the calculated interest amount. Maintaining this entry ensures that the interest is visible in the trial balance and can be reported in the GST return.
When filing the GST return after the due date, the proviso to Section 50(1) requires interest only on the cash‑paid portion of the liability. The return software usually asks for the amount of tax paid in cash; the interest calculated on that amount is then entered in the designated field. The net liability (tax plus interest) is submitted, and the payment is made through the portal.
All calculations, dates, and journal entries must be stored for future audit. This includes the original GST return, payment receipts, the interest calculation worksheet, and any correspondence with the tax department. Keeping these documents for the statutory period protects the business from disputes and demonstrates that interest was computed as per Section 50.
If the tax department raises a notice regarding interest, the business can produce the interest worksheet, the journal entry, and the payment proof. Because interest arises by operation of law, no additional assessment is needed; the department simply verifies that the correct rate and period were applied.
After each filing cycle, the compliance team should review any interest incurred and identify why the payment was late or why credit was wrongly claimed. Implementing tighter deadline monitoring or better credit verification can reduce future interest costs, turning a compliance exercise into a cost‑saving opportunity.
The rate of 18% per annum is applied to the overdue GST amount from the day after the due date until the tax is paid. The interest is calculated on the cash‑paid portion of the liability when the return is filed late, as prescribed by the proviso to Section 50(1).
No. Interest under Section 50(3) only accrues when the wrongly availed input tax credit has actually been utilised in a purchase. If the credit remains unused, the provision does not generate interest.
No. Interest liability arises automatically under Section 50 for the period the tax remains unpaid or the credit is used. It does not depend on any notice, assessment or demand from the department.
Maintain the overdue tax or credit utilisation dates, the interest calculation worksheet, journal entries showing interest expense, payment receipts, and the filed GST return. These documents should be available for audit and any department enquiry.
Published 7 October 2026. Founder & CEO at VidhiSar. I have watched four companies pay for the same mistake, and it was never the mistake anyone expected. VidhiSar is software, not a law firm: every answer names the section it relies on so you can check it, and anything turning on your specific facts is worth putting to a professional. More about who builds this
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