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Tax Laws and Practice · Procedural Compliance under GST

Payment of Tax, Interest and Refunds under GST

Updated 11 October 2026 · Fact-checked

Under GST you pay tax through the electronic cash ledger, and use the electronic credit ledger for input tax credit. Late payment attracts interest for the days of delay. A refund is claimed under section 54 within two years from the relevant date, and the officer must pass the order within sixty days of a complete application.

Understand Payment of Tax, Interest and Refunds

GST works on electronic ledgers kept on the common portal. The electronic cash ledger holds money you deposit by challan. The electronic credit ledger holds input tax credit you are eligible for. The electronic liability register records what you owe. Tax liability is discharged by debiting these ledgers, with credit used in the order the law allows.

If you do not pay tax by the due date, you owe interest for the period of delay. Interest is a charge for using the government's money. It is calculated per day on the unpaid amount at the rate prescribed. Know the rule that interest is charged for the days of delay, then apply the rate given in the question.

A refund is the return of tax, interest or any other amount paid, when it was not due or the law allows it back. Section 54 is the main provision. Its explanation says refund includes refund of tax paid on zero-rated supplies, tax on deemed exports and unutilised input tax credit.

The claim has a time limit: an application must be made before two years from the relevant date. The relevant date differs by case. For goods exported by sea or air, it is the date the ship or aircraft leaves India. For services exported, it is generally the date of receipt of payment in convertible foreign exchange (or Indian rupees where RBI permits), or the date of invoice if payment came in advance. In any other case, it is the date of payment of tax.

Refund of unutilised ITC is allowed only in two situations: zero-rated supplies made without payment of tax, and an inverted duty structure, where tax on inputs is higher than tax on output supplies (other than nil rated or fully exempt supplies), except supplies notified by the Government. Outside these, you cannot claim it.

Key rules to remember

Time limit for refund claim (s 54(1))
Application before the expiry of 2 years from the relevant date
Count from the relevant date, not from the date of supply. Missing it ends the claim.
Time limit for notified bodies (s 54(2))
2 years from the last day of the quarter in which the inward supply was received
Applies to UN agencies, embassies, consulates and other notified persons.
Order on refund (s 54(7))
Order within 60 days from receipt of application complete in all respects
The clock starts only when the application is complete.
Provisional refund (s 54(6))
Provisional refund = 90% of the amount claimed (zero-rated supply claims)
Final order follows after verification. Not available to categories notified by the Government.
Unincorporated evidence threshold (s 54(4))
Claim below ₹2,00,000: a declaration of non-passing of incidence is enough
At ₹2,00,000 or more, documentary evidence is needed.
Minimum refund (s 54(14))
No refund under s 54(5) or (6) if amount < ₹1,000
This is a floor on payment, not on filing.
Interest on late payment (general approach)
Interest = Tax unpaid × rate % × days of delay ÷ 365
Use the rate given in the question. The rate is prescribed by notification, so do not rely on memory.
Withholding of refund (s 54(10))
Refund may be withheld or set off against unpaid dues
Applies where return is defaulted or tax, interest or penalty is unpaid beyond the last date for filing an appeal.

How to solve Payment of Tax, Interest and Refunds questions

Use this order for any question on payment, interest or refund under GST.

  1. 1Identify what is asked: payment mode, interest, or refund. Note the dates and amounts given.
  2. 2For payment, state which ledger is used: cash ledger for cash, credit ledger for ITC, and that liability is recorded in the liability register.
  3. 3For interest, find the due date, the actual payment date and count the days of delay. Apply the rate given in the question to the unpaid tax.
  4. 4For refund, classify the claim: export of goods, export of services, inverted duty, deemed export, excess payment, or order of an appellate authority.
  5. 5Fix the relevant date for that category and add two years to get the last date for the application. Compare it with the filing date.
  6. 6Check conditions: whether ITC refund is allowed in this case, whether the amount is below ₹1,000, and whether the unjust enrichment rule or declaration applies.
  7. 7Check for withholding or set-off under section 54(10) and (11), and note the 60-day order period and 90% provisional refund where relevant.
  8. 8Write the conclusion in ICSI style: provision, application to the facts, and a clear final answer.

Quickest way: Three-line refund check

When to use it: Use when a short problem asks whether a refund claim is valid or on time.

  1. Find the relevant date for the type of refund.
  2. Add two years and compare with the application date.
  3. Confirm the refund falls in a permitted category and is at least ₹1,000, then state the conclusion citing section 54.

Common mistakes in Payment of Tax, Interest and Refunds

  • Counting the two years from the date of supply or invoice

    Students assume the supply date is the starting point for every claim.

    Fix: Always identify the relevant date from the Explanation to section 54. For export of goods by sea it is the date the ship leaves India.

  • Claiming that all unutilised ITC is refundable

    The word unutilised sounds like it covers every case.

    Fix: Remember the two cases only: zero-rated supplies without payment of tax, and inverted duty structure. Also remember the drawback bar.

  • Treating the 60 days as running from the filing date

    Students ignore the phrase complete in all respects.

    Fix: Write that the order is due within sixty days of receipt of an application complete in all respects.

  • Confusing the ₹2,00,000 and ₹1,000 limits

    Both are small rupee thresholds in the same section.

    Fix: ₹2,00,000 relates to evidence of non-passing of incidence. ₹1,000 relates to the minimum refund payable.

  • Calculating interest on the total tax instead of the unpaid portion

    Students overlook amounts paid through the credit ledger or paid on time.

    Fix: Compute interest only on the amount paid late and only for the days of delay.

  • Ignoring the power to withhold refund

    Students stop once eligibility is established.

    Fix: Add a line on section 54(10): the officer may withhold the refund or deduct unpaid dues from it.

Worked examples

Example 1

Alpha Exports Ltd, Chennai, exported goods by sea. The ship left India on 10 July 2026. The company applied for refund of the tax paid on the inputs used in making the exports on 15 August 2028. Is the application within time?

Show the solution
  1. Provision: under section 54(1), an application must be made before the expiry of two years from the relevant date.
  2. Relevant date: for goods exported by sea, it is the date the ship leaves India, which is 10 July 2026.
  3. Two years from 10 July 2026 expire on 10 July 2028.
  4. The application was made on 15 August 2028, which is after that date.

Answer: The application is beyond the two-year limit under section 54(1) and is time-barred.

Example 2

Beta Traders paid GST of ₹4,00,000 on 20 March 2027 against a due date of 20 February 2027 (28 days of delay in February-March, counting from 21 February to 20 March). Compute interest at 18% per annum on the whole amount, taking 365 days in a year.

Show the solution
  1. Provision: interest is payable for the period of delay on the tax not paid by the due date, at the prescribed rate. The question gives the rate as 18%.
  2. Days of delay: 21 February to 28 February is 8 days (2027 is not a leap year), and 1 March to 20 March is 20 days, so total 28 days.
  3. Interest = ₹4,00,000 × 18% × 28 ÷ 365.
  4. ₹4,00,000 × 18% = ₹72,000.
  5. ₹72,000 × 28 = ₹20,16,000.
  6. ₹20,16,000 ÷ 365 = ₹5,523.29 approximately.

Answer: Interest payable is about ₹5,523.

Exam tips

  • Begin each refund answer with section 54 and the relevant date. Examiners reward the correct start date more than long narration.
  • Memorise the relevant dates for goods by sea or air, land, post, services, deemed exports and judgments. Time-limit questions are built on them.
  • In interest problems, show days of delay and the formula line by line, and state the rate you used if the question supplies it.
  • Always add a closing line on withholding or set-off under section 54(10) when facts mention pending returns or dues.
  • Do not cite old amendments. Mention that the two-year period replaced the earlier six months only if the question contrasts them.

Practice questions from Procedural Compliance under GST

Payment of Tax, Interest and Refunds 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, Interest and Refunds: frequently asked questions

What is the time limit for a GST refund claim?

Under section 54(1), you must apply before the expiry of two years from the relevant date. The relevant date depends on the type of refund, such as the date the ship leaves India for goods exported by sea. In any other case it is the date of payment of tax.

Is a refund of unutilised ITC available in all cases?

No. It is allowed only for zero-rated supplies made without payment of tax and for inverted duty structure, subject to notified exceptions. It is also not allowed if the supplier takes drawback of central tax or claims refund of integrated tax paid on the supplies.

Is interest on delayed payment calculated on the whole tax?

No. It is calculated on the amount of tax paid late, for the days of delay, at the prescribed rate. Use the rate stated in the question.

How soon must the officer decide a refund application?

The proper officer must issue the order within sixty days from the date of receipt of an application complete in all respects. For zero-rated supply claims, he may refund 90% provisionally before the final order.

Can a refund be withheld?

Yes. Under section 54(10), the officer may withhold a refund due to a person who has defaulted in filing a return or has unpaid tax, interest or penalty. He may also deduct such dues from the refund.