Payment of Tax: formula sheet

Key formulas

Cash ledger (PMT-05)

Credit: deposit via challan | Debit: payment of tax, interest, penalty, fee, others

Can pay any amount due under the Act. Balance can be claimed as refund by application.

Credit ledger (PMT-02)

Credit: ITC claimed in return | Debit: payment of output tax only

Cannot pay interest, penalty, late fee or fee. Also debited if ITC is claimed as refund or reversed.

Liability register (PMT-01)

Debit: amount payable | Credit: amount paid

Debited by the return, demand, interest or penalty. Credited on payment from cash or credit ledger.

Order of use of IGST credit

IGST → CGST and SGST/UTGST (in any order, after IGST is exhausted)

IGST credit must be fully used for IGST before it is used for CGST or SGST.

Order of use of CGST and SGST credit

CGST credit: CGST, then IGST | SGST/UTGST credit: SGST/UTGST, then IGST | CGST ↔ SGST not allowed

Cross-use between CGST and SGST/UTGST is barred.

Net cash payable (when no restriction bites)

Cash = Total output tax − ITC utilised

Use the head-wise rules first. The total is a check on your working.

Challan references

CPIN (14 digits, generated on portal) → CIN (17 digits, given by bank on payment)

Challan is valid for 15 days. The ledger is credited when the bank confirms the CIN.

IGST credit

IGST credit → IGST first → then CGST and SGST/UTGST (any order, any proportion)

IGST credit must be completely used before CGST or SGST credit is used (Rule 88A).

CGST credit

CGST credit → CGST first → then IGST

Never against SGST/UTGST.

SGST/UTGST credit

SGST/UTGST credit → SGST/UTGST first → then IGST

Never against CGST.

Cess credit

Cess credit → cess only

Cess credit can pay only cess, and no GST credit (IGST, CGST or SGST) can pay cess. Cess liability is paid by cess credit or cash.

What credit can pay

Credit ledger → output tax only

Not for RCM tax, interest, penalty, fees or other dues. These need cash.

Cash required

Cash payable = Total liability − Credit utilised

Compute head by head. A surplus in one head cannot cover a shortfall in a head it cannot pay.

Order of discharge of dues

Self-assessed tax and other dues of the return period first, in the order tax → interest → penalty → fee → others; then other amounts payable (such as demands)

Section 49(8) sets this order. State it in a theory answer.

1% cash rule (Rule 86B)

Where monthly taxable supplies (other than exempt and zero-rated supplies) exceed ₹50 lakh, the credit ledger cannot be used to pay more than 99% of output tax liability; at least 1% is paid in cash

Main exceptions: the person (or the proprietor, karta, managing director or any partner) has paid income tax of more than ₹1 lakh in each of the last two financial years; the person received refunds above ₹1 lakh in the preceding financial year on unutilised credit (zero-rated supplies or inverted duty); the person is a government department, PSU, local authority or statutory body; or the person has already paid at least 1% of output tax in cash cumulatively up to that month. Other cases exist. Check the conditions in the question.

Interest on delayed payment of tax

Interest = Tax paid late (net cash liability) × 18% × Days of delay ÷ 365

By the usual counting convention, days run from the day after the due date up to the date of payment. Rate is as notified under section 50(1).

Interest on wrongly availed and utilised ITC

Interest = ITC wrongly availed and utilised × 24% × Days ÷ 365

Under section 50(3), as substituted by the Finance Act, 2022 (effective retrospectively from 1 July 2017), interest runs from the date of utilisation to the date of reversal or payment. For the day count, the usual convention is to exclude the utilisation day and include the reversal or payment day. This is a calculation convention, not a statutory rule. The same 24% applies to undue or excess reduction of output tax liability.

Net cash liability

Net cash liability = Output tax liability − ITC available in the electronic credit ledger on the due date and utilised

As per the proviso to section 50(1), interest at 18% is charged on the portion of tax payable that is paid by debiting the electronic cash ledger, net of ITC that was available in the electronic credit ledger on the due date.

Which rate applies

Late payment of tax → 18%; Excess or undue ITC claim → 24%

Check what went wrong in the question before picking the rate.

TDS applicability (section 51)

Deduct only if: deductor is a specified person AND contract value (excluding GST) > ₹2,50,000

Test the whole contract value, not each payment. Exactly ₹2,50,000 is not enough; it must exceed it.

TDS rate

2% = 1% CGST + 1% SGST (intra-State) or 2% IGST (inter-State)

Charged on the payment value excluding GST shown on the invoice.

TDS amount

TDS = 2% × value of supply (excluding GST)

Net payment to supplier = invoice value including GST − TDS.

No TDS where location mismatch (proviso to section 51(1))

No TDS if the location of the supplier and the place of supply are both in a State/UT different from the State/UT of registration of the recipient

Both conditions must hold together. For example, the recipient is registered in State X, but the supplier is located in State Y and the place of supply is also in State Y. Then no TDS applies. If only one of them differs from the recipient's State/UT of registration, this exclusion does not apply.

TCS rate (section 52)

0.5% = 0.25% CGST + 0.25% SGST (intra-State) or 0.5% IGST (inter-State)

This is the rate in force from 1 July 2024. It was 1% earlier.

Net value for TCS

Net value = taxable supplies through the ECO in the month (excluding section 9(5) supplies) − taxable supplies returned in the month

TCS = 0.5% × net value. Work out supplier-wise.

Due dates and late fees

Payment to government: by 10th of next month. GSTR-7 (TDS) and GSTR-8 (TCS): by 10th of next month

The TDS certificate (GSTR-7A) is due within 5 days of crediting the amount to the government. Late fee for failing to furnish the certificate is ₹100 per day, maximum ₹5,000. Late fee for GSTR-7 or GSTR-8 under section 47(1) is ₹50 per day (₹25 CGST + ₹25 SGST), maximum ₹5,000 (₹2,500 CGST + ₹2,500 SGST). Nil returns have a lower fee. Check the figures against the latest notification.

Ledger rule

Cash ledger → tax, interest, penalty, fee, any other amount | Credit ledger → output tax only

ITC can never pay interest, penalty, late fee or RCM tax.

Reverse charge payment

RCM tax = payable in cash only

The ITC balance cannot be used even if it is large. Credit of RCM tax is available after cash payment, if eligible.

OTC deposit limit

OTC deposit ≤ ₹10,000 per challan per tax period (Rule 87(3), CGST Rules)

OTC payment is made through an authorised bank by cash, cheque or demand draft. The cap does not apply to deposits by government departments and other persons notified by the Commissioner.

Challan validity

Challan valid for 15 days from generation

Pay within this window or generate a new challan.

Order of discharge of liability (Section 49(8))

First: self-assessed tax and other dues of the return (earlier tax periods first, then current tax period) | Then: any other amount payable | Within each category: tax → interest → penalty → fee → others

Applies when liability is discharged from the ledgers. Self-assessed dues of the return come before other amounts such as those arising from demand orders.

ITC utilisation by head

IGST credit → IGST first, then CGST, then SGST/UTGST | CGST credit → CGST first, then IGST | SGST/UTGST credit → SGST/UTGST first, then IGST

Under Sections 49A and 49B, CGST and SGST/UTGST credits are used for IGST only after the own-head liability is cleared, and IGST credit must be fully used first. CGST credit cannot pay SGST/UTGST, and SGST/UTGST credit cannot pay CGST.

Transfer between heads

Cash ledger balance of one head → another head by Form GST PMT-09

Section 49(10). It covers tax, interest, penalty, fee and other amounts.

QRMP monthly payment: fixed sum method

Fixed sum = 35% of the tax paid in cash in the preceding quarter's return (for a person who was a monthly filer: 35% of the cash paid in the last return of the preceding quarter)

Paid by the 25th of the next month through PMT-06 for the first two months of the quarter. Not available to a registered person who has not furnished the return for the preceding quarter (for example, a new registrant); such a person uses the self-assessment method. The self-assessment method (actual tax of the month) is a separate alternative, not part of this formula.

Refund of ledger balance

Balance in cash ledger → refund under Section 54 by Form GST RFD-01, claim within 2 years from the relevant date (Explanation to Section 54)

Credit ledger balance is refundable only in limited cases such as zero-rated supplies and inverted duty.

Quick revision

• Three electronic ledgers: liability register, cash ledger, credit ledger.
• The cash ledger can pay tax, interest, penalty, fees and any other amount. The credit ledger can pay only output tax.
• IGST credit is used first for IGST, then for CGST, then for SGST/UTGST, in that order (Section 49(5) read with Rule 88A). Rule 88A requires IGST credit to be exhausted first, before any CGST or SGST/UTGST credit is used. You cannot choose the order freely.
• CGST credit pays CGST first, then IGST. It can be applied to IGST only after IGST credit is fully used. It can never pay SGST/UTGST.
• SGST/UTGST credit pays SGST/UTGST first, then IGST. It can be applied to IGST only after IGST credit is fully used. It can never pay CGST.
• Interest on delayed payment of tax is 18% a year, counted from the day after the due date to the date of payment.
• Interest on late payment is charged on the portion of tax payable through the electronic cash ledger (net of ITC available in the credit ledger) that was not paid by the due date.
• Interest at the higher rate of 24% a year applies where ITC is wrongly availed and utilised, or where there is an excess reduction in output tax liability (Section 50(3)).
• GST TDS is 2% (1% CGST + 1% SGST/UTGST, or 2% IGST) on contracts above ₹2,50,000 by notified deductors. The value excludes GST.
• GST TCS by e-commerce operators under Section 52 can be at a rate up to 1%. The rate in force is 0.5% (0.25% CGST + 0.25% SGST/UTGST, or 0.5% IGST) from 10 July 2024, on net taxable supplies. The earlier rate was 1% (0.5% + 0.5%, or 1% IGST).
• The tax deducted (TDS) or collected (TCS) must be paid to the Government within 10 days after the end of the month in which it was deducted or collected (Sections 51(2) and 52(3)). The returns are GSTR-7 for TDS and GSTR-8 for TCS, both filed by the 10th of the following month.
• A refund claim must be made within two years of the relevant date. No refund is paid if the amount is less than ₹1,000 (Section 54(14)). Interest on a delayed refund is 6% a year if the refund is not paid within 60 days from the date of receipt of the application (Section 56). The rate is 9% where the refund arises from an order in appeal or by a court (Section 115).

Common mistakes

• Using ITC to pay interest, penalty or late fee. Fix: Remember: credit ledger pays output tax only. Interest, penalty, fee and other amounts need cash.
• Setting CGST credit against SGST/UTGST liability (or the reverse). Fix: CGST and SGST are separate. Only IGST credit can move across to both. CGST and SGST credit may meet IGST only after their own head.
• Using CGST credit to pay SGST (or the reverse). Fix: Remember that CGST and SGST credits cross only through IGST. Strike out that pair in the grid.
• Using CGST or SGST credit before IGST credit is exhausted. Fix: Always use IGST credit first. After it is fully used, use CGST and SGST credit on their own heads.
• Charging 18% interest on the gross output tax liability. Fix: Subtract the ITC available on the due date and utilised first. Charge interest only on the net cash liability paid late.
• Using 18% for excess ITC claims, or 24% for late tax payment. Fix: Link the rates to the default: late payment is 18%, excess ITC is 24%. Higher rate for the more serious default.
• Applying the ₹2,50,000 threshold to each payment or each invoice instead of the contract. Fix: The condition is on the total value of supply under a contract. If the contract exceeds ₹2,50,000, deduct on each payment, even small ones.
• Calculating TDS on the invoice value including GST. Fix: Take the value excluding the GST indicated in the invoice. Then deduct from the payment.
• Using ITC to pay reverse charge tax Fix: Remember that RCM tax is a cash item. ITC arises later, after cash payment, subject to eligibility.
• Using CGST credit to pay SGST liability (or the reverse) Fix: CGST and SGST credits are never cross-utilised. Only IGST credit can pay both, and each credit can pay IGST.

Exam tips

• Always state that credit ledger pays output tax only. This one line is a frequent MCQ and a mark-earner in theory answers.
• Memorise the order of set-off table: IGST credit to IGST, CGST, SGST; CGST credit to CGST, IGST; SGST credit to SGST, IGST; no CGST-SGST cross-use.
• Draw the head-wise grid and check the total cash against total liability minus total credit.
• Know the difference in one line each: cash ledger = deposits (PMT-05); credit ledger = ITC (PMT-02); liability register = dues (PMT-01).
• For process questions, write the sequence: challan, CPIN, payment, CIN, credit to cash ledger.
• Draw the credit and liability grid in every set-off problem. It shows the examiner the order and earns step marks.
• Check the question for RCM tax, interest, penalty or fees. These are almost always meant to be paid in cash and are a favourite trap.
• In MCQs, test each option for forbidden pairs (CGST with SGST, anything with cess) before doing any arithmetic.