Direct and Indirect Taxation · Returns and Payment of Taxes

GST Payment of Tax, Electronic Ledgers and Interest

Updated 10 October 2026 · Fact-checked

GST is paid by discharging the entries in the electronic liability register using the electronic credit ledger (input tax credit) and the electronic cash ledger (money deposited by challan). Tax unpaid after its due date attracts interest under section 50, from the day after the due date, on the unpaid tax or, for late returns, on the cash-paid portion.

Understand Payment of Tax, Electronic Ledgers and Interest

Every registered person has three electronic records on the GST common portal. The electronic liability register shows what you owe: tax, interest, penalty, late fee and other amounts. The electronic credit ledger holds your input tax credit (ITC). The electronic cash ledger holds money you have deposited. Payment of GST means using the credit and cash ledgers to wipe out entries in the liability register.

The cash ledger is maintained in FORM GST PMT-05. To fill it, you generate a challan in FORM GST PMT-06 on the common portal and deposit the money. The challan is valid for fifteen days. You can deposit through internet banking, UPI, IMPS, credit or debit card, NEFT or RTGS, or over the counter at authorised banks (cash, cheque or demand draft, up to ten thousand rupees per challan per tax period, with some exceptions). When the bank generates a Challan Identification Number (CIN) and sends it to the portal, the amount is credited to your cash ledger. If your bank account is debited but no CIN is generated or communicated, you can represent the matter in FORM GST PMT-07.

The two ledgers are not equal. ITC can pay only tax (output tax). Interest, penalty, late fee and other non-tax dues can be paid only in cash. Cash can pay any dues, and cash deposited can also be transferred between heads in FORM GST PMT-09. A refund claimed from the cash ledger is debited to it, and re-credited if the refund is rejected.

When ITC is used, the heads matter. IGST credit is used first for IGST, then for CGST, then for SGST/UTGST. CGST credit is used for CGST first and then IGST. SGST/UTGST credit is used for SGST/UTGST first and then IGST. CGST credit can never pay SGST/UTGST and the reverse. Also, dues of earlier tax periods are cleared before dues of the current period, and within each, tax comes before interest, penalty, fee and others.

If you do not pay tax within the prescribed period, section 50(1) makes you pay interest on your own, at a rate not exceeding eighteen per cent a year, as notified. It runs from the day after the due date. If you wrongly avail and utilise ITC, section 50(3) charges interest at a rate not exceeding twenty-four per cent a year, as notified. In exam questions, the rate is normally given. Use that rate.

Key rules to remember

Interest on delayed payment of tax (general case): Interest = Unpaid tax × Rate ÷ 100 × Days of delay ÷ 365; Rate is as notified under section 50(1), capped by the Act at 18% a year. Under Rule 88B(2), count from the date the tax was due until the date it is paid. Section 50(2) says interest runs from the day succeeding the due date. Use the rate given in the question.
Interest where the return is filed late (Rule 88B(1)): Interest = Tax paid by debiting the electronic cash ledger × Rate ÷ 100 × Days of delay in filing ÷ 365; Applies where supplies of the period are declared in a late return, and the return is not filed after proceedings under section 73, 74 or 74A have begun for that period. Tax paid through ITC is left out. Cash that was credited to the ledger on or before the due date and lay there until debited on filing is also left out.
Interest on ITC wrongly availed and utilised: Interest = ITC wrongly availed and utilised × Rate ÷ 100 × Days from utilisation to reversal or payment ÷ 365; Section 50(3) caps the rate at 24% a year, as notified. Under Rule 88B(3), the period runs from the date of utilisation to the date of reversal or payment.
When ITC is treated as utilised (Rule 88B(3) Explanation): Utilised only when credit ledger balance falls below the wrongly availed ITC; extent = the shortfall; If the fall is due to payment of tax through the return, the date is the earlier of the return due date and the actual filing date. In all other cases it is the date of debit to the credit ledger.
What each ledger can pay: Credit ledger: tax only. Cash ledger: tax, interest, penalty, late fee, other dues; ITC cannot pay interest, penalty or late fee.
Order of using ITC: IGST credit → IGST, CGST, SGST/UTGST. CGST credit → CGST, IGST. SGST/UTGST credit → SGST/UTGST, IGST; No cross-use between CGST and SGST/UTGST.

How to solve Payment of Tax, Electronic Ledgers and Interest questions

Use this method for any question on payment of GST, ledgers or interest. Write each step so the examiner can award step marks.

1List the liability by head: IGST, CGST, SGST/UTGST, and note which are tax, interest, penalty or fee.
2List the opening balance in the credit ledger by head and the cash ledger balance.
3Set off ITC against tax only, in the permitted order: IGST credit first, then CGST credit, then SGST/UTGST credit. Keep each head's remaining liability as you go.
4Pay the remaining tax, and all interest, penalty and late fee, from the cash ledger. Show the cash needed by head.
5For interest, identify the case: late payment of tax (Rule 88B(2)), late return with cash-paid portion (Rule 88B(1)), or wrongly utilised ITC (Rule 88B(3)).
6Count days exactly: from the day after the due date to the date of payment, both counted as per the rule. Apply the rate given and divide by 365.
7Show the final figures and a one-line conclusion, such as total cash payable or total interest.

Quickest way: Three-line ledger check

When to use it: Use this for numerical questions asking for net cash payable or interest, when time is short.

Net each head: liability minus the ITC allowed against it (IGST credit first). Whatever is left is cash.
For interest, ask one question: was the tax paid late, or was the return filed late? If the return was late, charge interest only on the cash-paid portion. If the tax was paid late, charge on the unpaid tax.
Compute days, multiply by rate and divide by 365, and round to the nearest rupee. Cross-check that you did not charge interest on ITC-paid tax in a late return case.

Common mistakes in Payment of Tax, Electronic Ledgers and Interest

Using ITC to pay interest, penalty or late fee.
Students treat the credit ledger like a general wallet.
Fix: Remember that ITC pays only tax. Every interest, penalty and fee amount goes to the cash ledger.
Using CGST credit to pay SGST/UTGST, or the reverse.
Students think any credit can pay any tax of the same total value.
Fix: Draw a small grid. CGST credit pays CGST then IGST. SGST/UTGST credit pays SGST/UTGST then IGST. Never cross the two.
Charging interest on the full tax when the return is filed late.
Students use the general rule for every late payment.
Fix: For a late return where supplies are declared in it, Rule 88B(1) charges interest only on the portion paid by debiting the electronic cash ledger, for the period of delay in filing.
Counting the due date as a day of delay.
It feels natural to count from the due date itself.
Fix: Section 50(2) says interest is calculated from the day succeeding the due date. Start counting the day after.
Quoting a rate from memory instead of the rate in the question.
Students recall a rate and ignore the notified rate or the data given.
Fix: State that the rate is as notified, capped at 18% for section 50(1) and 24% for section 50(3), and use the rate given in the question.
Treating wrongly availed ITC as utilised from the date it was availed.
Students assume interest starts when the credit is taken.
Fix: Under Rule 88B(3), interest runs from the date of utilisation, which arises only when the credit ledger balance falls below the wrongly availed amount.

Worked examples

Example 1

Shreya Traders has an unpaid CGST liability of ₹3,00,000 for a tax period, due on 20 March. It paid the tax in cash on 9 April of the same year. Assuming the rate is 18% a year, compute the interest. This is a case under Rule 88B(2), not a late return filing case. Use 365 days.

Show the solution

Identify the rule: interest on unpaid tax under section 50(1) and Rule 88B(2).
Find the period: interest starts on the day after the due date, 21 March, and runs to the date of payment, 9 April.
Count days: 21 to 31 March is 11 days. 1 to 9 April is 9 days. Total is 20 days.
Compute interest: ₹3,00,000 × 18 ÷ 100 × 20 ÷ 365 = ₹54,000 × 20 ÷ 365 = ₹10,80,000 ÷ 365 = ₹2,958.90.
Round to the nearest rupee: ₹2,959.

Answer: Interest payable is ₹2,959, payable through the electronic cash ledger.

Example 2

Mehta Industries has an output tax liability of ₹5,00,000 for a tax period. It pays ₹3,00,000 through ITC and ₹2,00,000 by debiting the electronic cash ledger while filing the return. The return is due on 20 October and is filed on 30 October. The cash was deposited on 30 October, after the due date. Compute the interest at 18% a year, using 365 days. Supplies were declared in this return, and no proceedings under section 73, 74 or 74A had begun for the period.

Show the solution

Identify the rule: supplies are declared in a late return, so Rule 88B(1) applies, with the proviso to section 50(1).
Identify the base: interest is on the portion of tax paid by debiting the electronic cash ledger, that is ₹2,00,000. The ITC portion of ₹3,00,000 is excluded.
Find the delay: due date is 20 October and filing date is 30 October, so the delay is 10 days (21 to 30 October).
Check the proviso to Rule 88B(1): no cash was lying in the ledger from the due date, so no deduction applies.
Compute interest: ₹2,00,000 × 18 ÷ 100 × 10 ÷ 365 = ₹36,000 × 10 ÷ 365 = ₹3,60,000 ÷ 365 = ₹986.30.
Round to the nearest rupee: ₹986.

Answer: Interest payable is ₹986, charged only on the ₹2,00,000 paid in cash. Interest is paid from the cash ledger.

Exam tips

In MCQs, watch the word 'only'. ITC pays tax only. Interest, penalty and late fee need cash.
Always write the rule you apply: Rule 88B(1), (2) or (3), and section 50(1) or (3). It earns step marks even if arithmetic slips.
Show a small table of heads, ITC used and cash payable. It keeps IGST, CGST and SGST sorted and is easy to mark.
Read the dates carefully. Interest starts the day after the due date. Count days by month and show the count.
Use the rate stated in the question. If none is given, say the rate is as notified, not exceeding 18% for section 50(1) and 24% for section 50(3).

Practice questions from Returns and Payment of Taxes

Payment of Tax, Electronic Ledgers and Interest 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, Electronic Ledgers and Interest: frequently asked questions

What is the difference between the electronic cash ledger and the electronic credit ledger?

The cash ledger (FORM GST PMT-05) holds money you deposit through a challan. It can pay tax, interest, penalty, late fee and other dues. The credit ledger holds your input tax credit and can pay tax only.

How do I pay a GST liability using challan PMT-06?

Generate a challan in FORM GST PMT-06 on the common portal, enter the amounts by head, and pay through an allowed mode such as internet banking, UPI, NEFT or RTGS. The challan is valid for fifteen days. After the bank sends the CIN, the amount is credited to your cash ledger, and you then use it to discharge liabilities.

What is the interest rate for delayed GST payment under section 50?

Section 50(1) allows interest at a rate not exceeding eighteen per cent a year, as notified. Section 50(3) allows up to twenty-four per cent for ITC wrongly availed and utilised. In an exam, use the rate given in the question.

Is interest charged on the tax paid through ITC when the return is filed late?

No. Where supplies are declared in a late return, interest is calculated only on the portion of tax paid by debiting the electronic cash ledger, for the period of delay in filing. There is an exception where the return is filed after proceedings under section 73, 74 or 74A have begun for that period.

From which date does interest on delayed GST payment run?

Section 50(2) says interest is calculated from the day succeeding the day on which the tax was due to be paid. Under Rule 88B(2), it continues until the date the tax is paid.