Indirect Tax Laws · Refunds

Interest on Delayed Refunds under Section 56 and Rule 94 of GST

Updated 5 October 2026 · Fact-checked

Under Section 56 of the CGST Act, if a refund ordered under Section 54(5) on a Section 54(1) application is not paid within 60 days of receipt, you get interest from day 61 until payment. The rate is 6%, or 9% where an order has attained finality. Rule 94 sanctions it by order with payment advice in FORM GST RFD-05.

Understand Interest on Delayed Refunds (Section 56, Rule 94)

A GST refund must be processed in time. You apply under Section 54(1), and the proper officer passes the refund order under Section 54(5). Section 54(7) says the proper officer must sanction the refund within 60 days from the date of receipt of a complete application. Section 56 gives you a remedy if the department is late: the government pays you interest for the delay.

Interest is payable only on the tax that has been ordered to be refunded. It runs from the date immediately after the 60 days expire until the date the refund is actually paid. It is not counted from the date of the order, and not from the date the tax was originally paid.

There are two rates. The normal rate applies to refunds ordered by the proper officer under Section 54(5). It is capped at 6% and the government has notified 6%. A higher rate, capped at 9% and notified at 9%, applies under the proviso to Section 56 where the refund claim arises out of an order of the adjudicating authority, Appellate Authority, Appellate Tribunal or court that has attained finality, and it is not refunded within 60 days from the date of receipt of the application filed consequent to that order.

The Explanation to Section 56 works together with the proviso for appellate refunds. Where a refund is ordered by an Appellate Authority, Appellate Tribunal or court against an order of the proper officer under Section 54(5), that higher order is deemed to be an order passed under Section 54(5). This deeming brings the refund within Section 56, so interest is payable. It does not fix the rate. The 9% rate comes from the proviso, which applies where the order has attained finality.

Rule 94 is the rule that deals with the order sanctioning interest on delayed refunds. The proper officer passes this order together with a payment advice in FORM GST RFD-05, as part of the refund payment process. The order states the amount of refund that was delayed, the period of delay and the interest payable. It is not a separate step after the refund is paid. Do not confuse it with Rule 92, which deals with the order sanctioning the refund itself.

So the exam logic is simple: check whether the refund was late, pick the correct rate, count the days of delay, and compute simple interest on the refund amount.

Key rules to remember

Trigger for interest: Refund not paid within 60 days from the date of receipt of the application under Section 54(1); Interest is on the tax ordered to be refunded under Section 54(5). It is payable only if the refund is delayed beyond 60 days.
Period of interest: From the day immediately after expiry of 60 days to the date of refund; The 60 days themselves carry no interest. Always compute the delay, not the total days since application.
Normal rate: 6% per annum (cap in Section 56: not exceeding 6%); Applies to refunds ordered by the proper officer under Section 54(5).
Higher rate (proviso): 9% per annum (cap in Section 56: not exceeding 9%); The proviso applies where the refund claim arises from an order of the adjudicating authority, Appellate Authority, Appellate Tribunal or court that has attained finality, and it is not refunded within 60 days of the application filed consequent to that order. The Explanation brings a refund ordered by an Appellate Authority, Tribunal or court under Section 54(5) as a deemed order, so Section 56 applies.
Interest computation: Interest = Refund amount × Rate ÷ 100 × Days of delay ÷ 365; Simple interest. Use the number of days of delay beyond 60 days. Use 365 days unless the question says otherwise.
Rule 94 (interest on delayed refund): Order sanctioning interest on delayed refunds, with payment advice in FORM GST RFD-05; Rule 94 deals with the order sanctioning interest on delayed refunds. The order is passed with the payment advice in FORM GST RFD-05 as part of the refund payment process, not as a separate step afterwards. Rule 92 deals with the order sanctioning the refund itself. No separate application for interest is needed under Section 56.

How to solve Interest on Delayed Refunds (Section 56, Rule 94) questions

Use this sequence for any question on interest on delayed refunds. It also works for theory answers on the provision.

1Identify the refund and the date of receipt of the complete application. If a deficiency memo was issued and a fresh application filed, take the date of the fresh application.
2Find the date by which the refund should have been paid: 60 days from the date of receipt of the application.
3Check the actual date of refund or the days taken. If it was paid within 60 days, no interest is payable under Section 56.
4Decide the rate. If the refund arises from an order of an adjudicating or appellate authority, Tribunal or court that has attained finality, the proviso applies: use 9% and count the 60 days from the application filed consequent to that order. For a refund ordered by the proper officer under Section 54(5), use 6%.
5Compute the days of delay: the days after the 60th day up to the date of refund.
6Apply the formula: Refund × Rate × Days of delay ÷ 365. Compute interest only on the tax ordered to be refunded.
7State the procedure: Rule 94 deals with the order sanctioning interest on delayed refunds. Rule 92 deals with the order sanctioning the refund itself.
8Write the answer in provision, facts and conclusion form, with the amount of interest clearly stated.

Quickest way: Delay days times rate shortcut

When to use it: Use this in MCQs and short numerical questions where the dates or days taken are given and only the interest amount is asked.

Subtract 60 from the total days taken. The result is the delay in days. If it is zero or negative, the answer is nil.
Check the words in the question. A refund arising from an order of a higher authority or court that has attained finality means 9%. A refund ordered by the proper officer under Section 54(5) means 6%.
Compute Refund ÷ 365 first, then multiply by the rate and by the delay days. Choose refund figures that divide cleanly by 365 when checking.
Write the Rule 94 point in one line: Rule 94 deals with the order sanctioning interest on delayed refunds (Rule 92 deals with the refund sanction order).

Common mistakes in Interest on Delayed Refunds (Section 56, Rule 94)

Computing interest from the date of application or from the date the tax was paid.
Students assume interest runs for the whole waiting period, as with interest on delayed tax payment.
Fix: Interest starts only from the day after the 60 days from receipt of the application expire. The first 60 days are interest-free.
Using 6% for every refund.
6% is remembered as the standard rate and the proviso is forgotten.
Fix: Read the facts. If the refund flows from an order of an appellate authority, Tribunal or court that has attained finality, the proviso applies and the rate is 9%.
Counting the 60 days from the date of the order in appeal cases.
Students think the higher authority's order itself starts the clock.
Fix: For the proviso, the 60 days run from the date of receipt of the application filed consequent to the order.
Treating the 60 days as running from a defective application.
Students ignore that an application must be complete.
Fix: If a deficiency memo is issued and the applicant files a fresh application, the period is counted from that fresh application.
Calculating interest on the total claim even when only part of it was ordered to be refunded.
The question gives the claim amount and an order for a lower amount, and the figures are mixed up.
Fix: Interest is payable on the tax ordered to be refunded. Use the sanctioned amount, not the amount claimed.
Saying the interest is paid on a separate application by the taxpayer, or that Rule 94 is the refund sanction order itself.
Rules 92 and 94 both deal with orders, so they are confused.
Fix: Rule 92 deals with the order sanctioning the refund. Rule 94 deals with the order sanctioning interest on delayed refunds. No separate application for interest is needed.

Worked examples

Example 1

Rise Traders Ltd. files a complete application on 10 June 2026 for refund of ₹6,57,000 of unutilised input tax credit due to an inverted duty structure. The proper officer sanctions the refund under Section 54(5), and it is credited 100 days after the date of receipt of the application. Compute the interest payable under Section 56 at the notified rate and state the procedure.

Show the solution

The refund is sanctioned by the proper officer under Section 54(5), so it is not a refund arising from an appellate or court order. The normal rate of 6% applies.
The refund should have been paid within 60 days from the date of receipt of the application.
Actual time taken is 100 days. Delay = 100 − 60 = 40 days.
Interest = ₹6,57,000 × 6% × 40 ÷ 365.
₹6,57,000 ÷ 365 = ₹1,800. Then ₹1,800 × 6% × 40 = ₹1,800 × 2.4 = ₹4,320.
Under Rule 94, the proper officer sanctions the interest of ₹4,320 for the 40 days of delay by an order with payment advice in FORM GST RFD-05, as part of the refund payment process. No separate application for interest is needed.

Answer: Interest payable is ₹4,320 at 6% for 40 days of delay, sanctioned by an order under Rule 94 with payment advice in FORM GST RFD-05.

Example 2

The refund claim of Meru Exports Pvt. Ltd. was rejected by the proper officer. The Appellate Authority allowed the appeal for ₹7,30,000 and the order attained finality. Meru files a refund application consequent to the order, and the refund is paid 150 days after receipt of that application. Compute the interest under Section 56 and identify the rate.

Show the solution

The Appellate Authority's order is deemed to be an order under Section 54(5) by the Explanation, so Section 56 applies. The order has attained finality, so the proviso applies and the rate is 9% (notified rate).
The 60 days are counted from the date of receipt of the application filed consequent to the order.
Delay = 150 − 60 = 90 days.
Interest = ₹7,30,000 × 9% × 90 ÷ 365.
₹7,30,000 ÷ 365 = ₹2,000. Then ₹2,000 × 9% × 90 = ₹2,000 × 8.1 = ₹16,200.
Under Rule 94, the proper officer sanctions the interest of ₹16,200 by an order with payment advice in FORM GST RFD-05, as part of the refund payment process.

Answer: Interest payable is ₹16,200 at 9% for 90 days of delay, because the refund arises from an appellate order that has attained finality. It is sanctioned under Rule 94 with payment advice in FORM GST RFD-05.

Exam tips

In numerical questions, always compute delay days first. Many students lose marks by using the total days since the application.
Underline phrases such as attained finality, Appellate Authority, Tribunal or court. They signal the 9% proviso and the changed starting point of the 60 days.
In theory answers, quote Section 56 for the right to interest, Section 54(5) for the order, and Rule 94 as the rule dealing with the order sanctioning interest on delayed refunds. Do not confuse it with Rule 92, which deals with the refund sanction order.
Show the formula and the working in the written part. Even if the arithmetic slips, you earn method marks.
For MCQs, check whether the refund was paid within 60 days. A nil-interest answer is a common trap.

Practice questions from Refunds

Interest on Delayed Refunds (Section 56, Rule 94) in other exams

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

Interest on Delayed Refunds (Section 56, Rule 94): frequently asked questions

From which date is interest on a delayed GST refund calculated?

It is calculated from the day immediately after the expiry of 60 days from the date of receipt of the refund application. It runs until the date the refund is actually paid. The first 60 days carry no interest.

What is the rate of interest on delayed refund under GST?

Section 56 provides for a rate not exceeding 6%, and the notified rate is 6%. Where the refund arises from an order of an adjudicating authority, appellate authority, Tribunal or court that has attained finality, the proviso caps the rate at 9% and the notified rate is 9%.

What is the order under Rule 94?

Rule 94 deals with the order sanctioning interest on delayed refunds under Section 56. The proper officer passes it along with a payment advice in FORM GST RFD-05, as part of the refund payment process. It is different from Rule 92, which deals with the order sanctioning the refund itself. No separate application for interest is needed.

Is interest payable if the refund is paid within 60 days?

No. Section 56 applies only when the refund is not paid within 60 days from the date of receipt of the application. Payment within that period attracts no interest under this section.