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CA Intermediate · Taxation

Payment of Tax under GST: CA Intermediate Chapter Guide

Payment of Tax under GST explains how a registered person pays tax, interest and penalty using the electronic cash, credit and liability ledgers. You solve it by finding the output liability, applying input tax credit in the fixed set-off order, paying the balance in cash, then adding interest, TDS or TCS where relevant.

What this chapter covers

This chapter is about how GST money actually moves. You learn the three electronic ledgers: the electronic liability register, the electronic cash ledger and the electronic credit ledger. You then learn what each ledger can pay, in what order input tax credit (ITC) is used, and what extra you owe if you pay late or claim credit wrongly.

The chapter also covers collection at source. TDS under GST is deducted by notified persons on payments to suppliers. TCS is collected by e-commerce operators on supplies made through their platform. The last part deals with refund and other payment rules, including time limits and interest on delayed refunds.

It sits at the end of the GST flow. Supply, value, time of supply, place of supply, ITC and registration decide how much tax is due and how much credit exists. This chapter turns those numbers into a payment. Questions here often reuse figures from earlier chapters, so a weak earlier chapter will cost you here too.

This chapter is compact, rule-based and numerical, which makes it a good scoring area in Section B. The set-off order and the interest calculation are favourites for both MCQs and short computational answers, and the rules are fixed, so you lose marks only through carelessness. It also tests whether you understand the whole GST scheme, because a net tax payable question needs correct ITC, correct rates and correct interest in one answer. A day spent here often pays back more than a day spent on a long, descriptive chapter.

Payment of Tax: topics in the order to study them

  1. 1Payment of Tax under GST: Electronic LedgersStart here because every later rule refers to the cash, credit and liability ledgers, and you must know what each can and cannot pay.
  2. 2Utilisation of Input Tax Credit and Order of Set-offThis is the core computational skill, and it builds directly on the ledgers: which credit pays which tax, and in what order.
  3. 3Interest on Delayed Payment and Excess ClaimsInterest is calculated on what remains payable after set-off, so you need the set-off order first.
  4. 4TDS and TCS under GSTThese are separate collection mechanisms with their own rates, thresholds and returns, best learned once the main payment flow is clear.
  5. 5Refund, Payment Rules and Other ProvisionsStudy this last because it covers time limits and exceptions that make sense only after you know how payment and credit work.

How to prepare Payment of Tax

Treat this as a rules-plus-numbers chapter. First fix the rules in memory, then practise sums until the order of set-off is automatic.

  1. Draw the three ledgers on one page. Write what goes into each, what comes out, and that ITC can pay only tax, never interest, penalty or late fee.
  2. Make a small table of credit types against the taxes they can pay: IGST credit, CGST credit and SGST/UTGST credit. Remember that CGST credit cannot pay SGST/UTGST and the reverse. Remember also that IGST credit is used up first.
  3. Practise at least five set-off problems. In each, write output liability by head, then credit by head, then show every adjustment line by line so you earn step marks. Finish with the cash payable by head.
  4. Learn interest as a short list: the rate on late payment of tax, the higher rate for ITC wrongly availed and utilised or excess reduction in output tax liability, the period counted, and that 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. Then do two day-count problems.
  5. Learn TDS and TCS in a comparison grid: who deducts or collects, the rate, the threshold, the base value, the return and the payment time. The return is GSTR-7 for TDS and GSTR-8 for TCS, both filed by the 10th of the next month. The amount deducted or collected 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)). Do not mix the two.
  6. Revise refund basics: the two-year time limit, the ₹1,000 minimum refund limit (Section 54(14)), and the interest on delayed refund. Cover these in a one-page list.
  7. Finish with a timed set of MCQs and two written questions. Check each answer for the legal rule, the working and the conclusion.

Common mistakes in Payment of Tax

  • Using CGST credit to pay SGST/UTGST liability, or the reverse.

    Fix: Write the cross-utilisation rule at the top of every set-off answer: CGST credit to CGST then IGST; SGST/UTGST credit to SGST/UTGST then IGST.

  • Using ITC to pay interest, penalty or late fee.

    Fix: Remember that only the cash ledger pays interest, penalty and fees. Show these as separate cash payments in your working.

  • Charging interest on the full output tax instead of the net cash liability.

    Fix: First set off ITC, then compute interest only on the tax that had to be paid in cash and was paid late.

  • Mixing up the rates for late payment of tax and for wrongly availed ITC.

    Fix: Memorise a pair: 18% for late payment, 24% for ITC wrongly availed and utilised or excess reduction in output tax liability. Quote the rate before computing.

  • Computing TDS or TCS on a value that includes GST, or confusing the two mechanisms.

    Fix: Remember that TDS is deducted by the payer from the supplier's payment, and TCS is collected by the e-commerce operator. For TDS, apply the rate to the contract value excluding GST.

  • Writing only the final number in a computation answer.

    Fix: Show a head-wise table with liability, credit used and cash payable, then add interest in a separate line. This earns step marks even if one figure is wrong.

Last-day revision: Payment of Tax

  • 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).

Payment of Tax practice questions

Payment of Tax in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Payment of Tax: frequently asked questions

Is Payment of Tax mostly theory or numerical for CA Intermediate?

It is a mix. Ledgers, TDS, TCS and refund rules are factual and suit MCQs. Set-off of ITC and interest are numerical and common in written questions. Prepare both equally.

Can input tax credit be used to pay interest or penalty under GST?

No. The electronic credit ledger can be used only to pay output tax. Interest, penalty, late fee and other amounts must be paid from the electronic cash ledger.

What is the order of using IGST credit?

IGST credit must be used first to pay IGST. Any balance is then used for CGST, and only after that for SGST/UTGST, as per Section 49(5) read with Rule 88A. You cannot pick the order freely. CGST or SGST/UTGST credit can be applied against IGST only after IGST credit is fully used.

How do I avoid mixing up TDS and TCS under GST?

Link TDS to the payer: a notified deductor holds back tax when paying a supplier. Link TCS to the platform: an e-commerce operator collects tax on supplies made through it. Make a comparison grid of rate, threshold, base value and return, and revise it often.