Proviso to Interest under section 50

Hey Paras! Great question on interest on reversal of excess ITC under GST and the proviso to Section 50.

Situation Recap:

• You took excess ITC of Rs. 50,000 in Jan 2021 (mistakenly or duplicate claim).

• Later in Feb 2021, you reversed that Rs. 50,000 by adding it to your output tax liability.

• In Jan 2021, even after considering the excess ITC, you had no net cash tax payable because your ITC was sufficient.

• So, the question: Do you pay interest on this reversed amount?

Relevant Law: Section 50 of CGST Act (Interest on delayed payment of tax)

• Interest is payable on net tax liability — i.e., tax payable minus ITC available.

• The new proviso to Section 50 clarifies that interest is payable only on net tax liability.

• So, if there was no net tax liability in Jan 2021 (because of sufficient ITC), the interest liability will not arise on the excess ITC taken that month.

What about reversal in Feb 2021?

• When you add Rs. 50,000 to output tax in Feb 2021 (because you realized the mistake), you are effectively paying the tax in Feb 2021.

• Interest under Section 50 is on delayed payment of tax.

• Since you are paying the tax in Feb 2021, interest would be payable from the due date of Jan 2021 till Feb 2021 IF tax was due.

• But here, because of the proviso and your ITC position in Jan 2021, no interest is payable on that amount, as your net tax liability for Jan was zero.

Summary:

Conclusion:

You do not have to pay interest on the reversed amount, given that in Jan 2021 your net tax liability was zero due to sufficient ITC.