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How Delayed GST Payments Impact Enterprise Cash Flow (And How to Avoid Them)
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You can check the GST payment status from the GST portal. Log in to the portal and go to the Services menu. Find the Payments button there, followed by ‘Challan History’ to get the current status of previously created challans.
GST payments can be made using the business' preferred mode of payment. One can opt for online or offline methods depending on their convenience.
GSTR-1, GSTR-3B and annual GST returns are associated with the requirement to pay late GST fees per day.
Disclaimer: This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. The Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Article. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from the Bank. The Bank, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein. Tax laws are subject to amendment from time to time. The above information is for general understanding and reference. This is not legal advice or tax advice, and users are advised to consult their tax advisors before making any decision or taking any action.
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A steady cash flow allows businesses the freedom to capture opportunities, expand their setup and grow. GST is an important part of every business's finances. Filing out the GST returns is a non-negotiable act to protect the business finances from impact and to avoid legal consequences. Here is an insight on how delayed filing impacts the cash flow. If you are stuck in such a situation, there is enough time to improve. Learn here how!
Understanding GST Late Fees
GST late fees refer to the additional payments required from the business due to late or delayed filing of the GST returns. The late fee is INR 25 for CGST and SGST per day. The fee is reduced to INR 10 per day for CGST and SGST in case of NIL returns. The interest is also applicable to GST liabilities if the GST is paid after the due date. The interest rate is 18% per annum. Further, wrong ITC claims are also associated with a penalty of 24% per annum.
Impact of Delayed GST Payments
Delayed GST payments can impact businesses' cash flow. Here is how:
Leads to fines
The delay in GST payments levies a fine or interest on the enterprise. It contributes to the loss at the business end. The fees applicable in the scenario include a penalty for late return filing, which varies from lump sum to the percentage of due tax. Late payments are also liable for interest, which can lead to substantial impact. Additionally, the business also misses out on discounts on early payments.
Inability to Claim Input Tax Credit (ITC)
One of the conditions for claiming Input Tax Credit (ITC) is to include accurate and timely GST filings. Inability to do so will restrict the ITC claims and increase the recipient’s tax liability, impacting the business finances and making it necessary for suppliers to file returns on time.
Cash Flow Disruptions
The mentioned interests and fines limit the business's finances, subsequently leading to cash flow disruption. The excess of lateness and carelessness can lead to challenging finance management as well.
Blocked E-way Bills
The inability to file GST on time leads to a block in e-way bills. It, in turn, impacts the flow of goods, subsequently impacting businesses’ operations and supply chains.
Poor Business Credibility
The problem occurs because of the constant delay in GST filing. This leads to a loss of trust in the company and its capabilities. Dealing with such companies is generally avoided by well-performing businesses, which leads to client, supplier, stakeholder, and customer loss.
Strict Audits
Consistent delayed GST payments will also elevate the case under the Tax Department. It will lead to strict audits, which may have negative consequences on the company and its finances. It will also cost the business time and resources.
Legal Proceedings
An indirect impact on cash flow will be through legal action taken on missing the GST payments for a longer duration. It can be taken by the Tax department.
Delayed Refund Processing
Late GST payments often result in delayed refund processing. The working capital will be inaccessible during this time, which may impact the process and operations flow of the business depending on the pending cash.
High Expenditures
The excess impact on cash flow can further lead to the requirement of short-term loans. The interest rates and associated charges will directly and negatively influence the cash flow of the business.
GST Registration suspension
The lack of compliance, such as the inability to file returns, is also one of the reasons responsible for the cancellation of GST registration. If it happens, businesses will be prohibited from making taxable supplies.
Tips to Mitigate the Impact
Mitigating the impact is easy. Just have a look at the following points:
Summing Up
GST late payment is associated with harmful financial and reputational implications. To avoid the numerous issues and major impact possible on cash flow, businesses can choose online transaction tools. The Maker and Checker tool available in the Current Accounts by Kotak Mahindra Bank offers their customers the facility to make error-free online transactions.
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