Interest on delayed GST refunds: when it's due to you

A GST refund is money the government holds that belongs to your company. The law recognises that holding it too long has a cost. Section 56 of the CGST Act requires the department to pay interest when a refund is late. In practice, this interest is rarely calculated, and even more rarely claimed.

What section 56 says

If a refund ordered under section 54 is not paid within 60 days of the date the application was received, interest is payable at a notified rate for the period after the 60th day until the refund is paid. The rates are set by Notification No. 13/2017-Central Tax.

How it is computed

Interest is simple interest on the refund amount, for the number of days of delay after the 60-day window. Rule 94 of the CGST Rules provides that where only part of a refund is withheld or paid late, interest is calculated on that part. The application date is the date of a complete application, so a deficiency memo followed by a fresh application moves the start date.

A worked example

Suppose an exporter files a refund of ₹3 crore on 1 April (illustrative). The 60-day window ends on 31 May. A deficiency memo was not issued, so the application date holds. The refund is paid on 29 August, 90 days after the window closed.

Across a year of refunds, these amounts add up. A company with ₹40 crore of refunds paid an average of 60 days late would be owed about ₹39 L at 6% (illustrative).

Two points often cause disputes. First, when only part of a refund is paid late, interest runs only on that part. Second, where a deficiency memo was issued and the claim refiled, the 60 days normally count from the fresh application, so it matters whether the memo itself was valid and issued in time. Keep copies of every acknowledgement, memo and reply, since the dates on them decide the interest.

What to check

1. Record the application date

   Note the acknowledgement date for each RFD-01 and any fresh application after a deficiency memo.

2. Record the payment date

   Use the date the refund was credited, not the date of the order.

3. Compute the delay

   Count days after the 60th day, on the amount paid late.

4. Check the order

   See whether the RFD-05 payment advice includes interest, and whether the amount matches your calculation.

5. Pick the right rate

   Use 9% where the refund follows an appellate, tribunal or court order.

Interest is also separate from the refund itself. A company can accept the refund amount and still pursue interest that was left out, as long as it acts within the time allowed to challenge the order.

What the courts have said

High Courts have repeatedly treated section 56 interest as compensation for money withheld, not a discretionary grant, and have directed its payment where refunds were held up by wrongful rejections, red flags or procedural delay. The practical lesson is that interest is worth claiming in writing, and worth appealing when an order ignores it.

Common mistakes

• Not tracking dates. Without the application and payment dates, interest cannot be computed or proved.
• Accepting a silent order. If the order does not mention interest, it has in effect been refused.
• Using the wrong rate. Refunds following appellate orders qualify for 9%, not 6%.
• Missing the appeal window. An order that denies interest must be appealed within the time allowed, or the point is lost.

Why interest goes unclaimed

Interest falls between teams. The tax team files the refund and moves on once it is paid. Accounts see the credit in the bank and close the receivable. Nobody compares the payment date with the application date, so nobody notices that interest was due.

The amounts also look small against the refund itself. A few lakh on a refund of several crore rarely gets attention. But interest is calculated claim by claim, and across a year of export or inverted duty refunds the total can be material, especially for companies with large, recurring claims.

There is a second benefit to tracking it. A register of delays, claim by claim, shows which refund categories and which jurisdictions are slowest. That helps a CFO plan working capital around realistic timelines rather than the 60 days in the statute, and gives the tax team evidence when a refund is held without reasons.

How to claim it

Interest should be paid with the refund, through an order in Form GST RFD-05. If the order is silent or the interest is short, raise it in writing with the proper officer, and appeal the order if needed. Keep a register of application dates, deficiency memos and payment dates for every claim. Without those dates, interest cannot be proven.

Our GST Refund Recovery practice tracks interest alongside every refund, so it appears in the monthly statement as money due. Talk to us if you have refunds that came back late.

General information only, not tax advice. Check the current law and your facts before acting.