The Goods and Services Tax (GST) system in India was introduced to simplify the indirect tax structure. It offers numerous advantages to taxpayers, one of which includes the ability to claim a refund in certain situations. Whether you’re an exporter, a business with input tax credit accumulation, or someone eligible due to excess tax payment, the GST regime allows you to claim back the extra amount paid. But what happens when the refund is delayed? That’s where the concept of interest on GST refund becomes significant.
Many taxpayers are unaware that they are entitled to earn interest if the refund is not credited to their account within a prescribed time. Understanding the interest rate for GST refund, the applicable rules, calculation method, and steps to claim it can help businesses ensure they receive their dues fully and on time. If you’re looking for professional help, consulting the Best GST Refund Consultant can make the process much smoother.
Why Understanding GST Refund Interest Matters
Understanding the interest payable on delayed GST refunds is crucial for businesses for the following reasons:
- Cash Flow Management: Timely refunds help maintain smooth cash flow. If delayed, businesses must know how much interest they are entitled to.
- Legal Right: It’s a statutory right under GST law, not a discretionary payment. Taxpayers must be aware to enforce it when necessary.
- Revenue Planning: For exporters and other refund-eligible categories, GST refund interest can form a minor but valuable source of income.
- Audit & Compliance: Knowing your rights can help in maintaining accurate records and addressing any non-compliance from the government’s side.
Interest Rate for GST Refund
According to Section 56 of the CGST Act, 2017, if a refund is not granted within 60 days from the date of receipt of a complete application, the taxpayer is entitled to receive interest.
- Standard Interest Rate: 6% per annum is payable on the refund amount.
- In case of refund arising from an appellate authority’s order (e.g., Tribunal/Court): The interest rate is 9% per annum.
This interest is calculated from the 61st day onwards until the date the refund is credited to the taxpayer’s account.
Relevant Notifications:
- Rule 94 of CGST Rules prescribes the procedure for interest payment.
- Notification No. 13/2017 – Central Tax prescribes the 6% and 9% interest rates.
Advantages of Interest on GST Refund
- Compensation for Delay: It acts as a relief for taxpayers who face working capital issues due to delayed refunds.
- Encourages Timely Processing: It motivates authorities to process refunds quickly.
- Legal Empowerment: Taxpayers can legally challenge unjustified delays.
- Transparency: A fixed rate defined by law ensures fairness.
Steps to Claim Interest on Delayed GST Refund
While the refund application is filed through Form GST RFD-01, there is no separate application for interest. Here is how the interest is handled:
Step-by-Step Guide:
- File Refund Application (GST RFD-01): Ensure that your application is complete with all supporting documents.
- Wait for 60 Days: The GST authorities are supposed to process and credit the refund within 60 days.
- Monitor the Status: Use the GST portal to track your application.
- If Delayed: Once the 60 days lapse, you are automatically eligible for interest.
- Authority Issues Order: Interest is granted via an order under Form GST RFD-05 along with the refund amount.
- Interest Payment: Credited directly to your bank account.
Tip: For faster and accurate processing, work with the Best GST Refund Consultant to file error-free applications and follow up with authorities when necessary.
Types of GST Refunds Eligible for Interest
Refunds can arise in several cases, and interest applies when there is a delay. Below are common categories:
Type of Refund | Eligible for Interest? |
Excess payment of tax | ✅ Yes |
Export of goods/services (with/without LUT) | ✅ Yes |
Accumulated Input Tax Credit (ITC) | ✅ Yes |
Refund due to inverted duty structure | ✅ Yes |
Refund from appellate authority orders | ✅ Yes (Interest at 9%) |
Tax paid on supplies not provided (e.g., cancelled orders) | ✅ Yes |
Example of Interest Calculation
Let’s say your refund amount is ₹1,00,000 and the refund was credited after 75 days from the date of the application.
- Delay = 75 – 60 = 15 days
- Interest Rate = 6% annually
- Interest Formula: (Refund amount × Interest rate × Delay in days) ÷ 365
- Interest = (1,00,000 × 6 × 15) ÷ 36500 = ₹246.57
Thus, you would receive ₹1,00,000 + ₹246.57 = ₹1,00,246.57.
Conclusion
Interest on delayed GST refunds is a legally backed compensation mechanism provided under the GST law. Taxpayers must be proactive in monitoring their refund timelines and ensuring that they receive what they are legally owed—including interest. While the GST system aims to be seamless, delays can still occur due to procedural or administrative issues. Therefore, being aware of your rights and the applicable interest rates helps in recovering the rightful dues.
If you’re unsure how to file for a refund, calculate interest, or deal with refund rejection, partnering with the Best GST Refund Consultant can save time, avoid hassles, and ensure maximum recovery with compliance.
FAQs
Q1. When is interest applicable on GST refunds?
A: Interest is applicable if the refund is not issued within 60 days from the date of filing a complete refund application.
Q2. What is the interest rate on delayed GST refunds?
A: The standard rate is 6% per annum. If the refund arises due to an order from a higher authority (e.g., appellate court), the rate is 9% per annum.
Q3. How is the interest on GST refund calculated?
A: Interest is calculated on a simple interest basis using the formula:
(Refund amount × Interest rate × No. of delayed days) ÷ 36500.
Q4. Is a separate application needed to claim the interest?
A: No. The interest is granted automatically by the GST department when they issue the refund order under GST RFD-05.
Q5. What if I don’t receive the interest on time?
A: You can raise a grievance through the GST Portal, file a complaint with the jurisdictional officer, or consult a GST professional.
Q6. Who can help me with GST refund and interest claims?
A: A professional GST practitioner or the Best GST Refund Consultant can assist with filing, tracking, and recovering delayed refunds with applicable interest.
Q7. Is the interest amount taxable?
A: Yes, interest received on GST refunds is considered as income and may be subject to income tax under “Income from Other Sources.”
