Interest on Delayed Refunds – Section 56 of GST

The GST law in India provides for a structured mechanism for the refund of excess tax paid by taxpayers. However, delays in refund processing can impact the working capital of businesses. To address this, Section 56 of the CGST Act prescribes interest on delayed refunds, ensuring timely disbursement to taxpayers.

Interest on Delayed Refunds

If any tax ordered to be refunded under Section 54(5) is not processed within 60 days from the date of receipt of the refund application (under Section 54(1)), the government is liable to pay interest. The rate of interest shall not exceed 6%, as specified by government notification based on the recommendations of the GST Council.

Calculation of Interest

• • Interest is payable for the period of delay beyond 60 days from the date of receipt of the refund application until the actual refund is made.

  • The interest rate and computation are subject to prescribed conditions and restrictions under GST law.

Higher Interest in Case of Adjudicated Refund Claims

When a refund claim arises due to an order by an Adjudicating Authority, Appellate Authority, Appellate Tribunal, or Court, and such order has attained finality, a higher interest rate of up to 9% may be applicable if the refund is not processed within 60 days of filing the application pursuant to such an order.

Effective Date of Enactment

• • Section 56 has been in effect since 1st July 2017.

  • The provision was amended on 1st October 2023 via Notification No. 28/2023-C.T., aligning with Section 147 of the Finance Act, 2023 (No. 8 of 2023).

Impact on Businesses

• Ensuring Liquidity: Delayed refunds can cause cash flow disruptions, especially for MSMEs and startups that rely on regular capital turnover.

• Compliance and Vigilance: Taxpayers must ensure timely filing and accurate documentation to avoid procedural delays.

• Legal Recourse: If refunds are delayed beyond the stipulated period, businesses have the right to claim interest and escalate the matter if necessary.

Conclusion

Section 56 of the CGST Act is a crucial safeguard for businesses against delays in tax refunds. Understanding its provisions helps taxpayers claim rightful interest on delayed refunds and ensure better financial planning.

For businesses facing refund delays, consulting a GST expert or Chartered Accountant can help navigate the legal provisions and ensure timely claims. You can contact us at +91 9769647582