Section 56 of the Central Goods and Services Tax (CGST) Act, 2017 deals with interest on delayed refunds. It protects eligible taxpayers from being left without compensation when a refund that has become payable under the GST law is not actually paid within the statutory period.
The provision is closely connected with Section 54, which establishes the general framework for claiming and sanctioning GST refunds. While Section 54 explains when and how a taxpayer can claim a refund, Section 56 provides for interest when an eligible refund is not paid within the prescribed time.
Under Section 56, where a tax amount ordered to be refunded under Section 54(5) is not refunded within 60 days from the date of receipt of the refund application, interest becomes payable. The normal interest rate is notified by the Government and cannot exceed 6% per annum under the main provision. A separate higher rate, not exceeding 9% per annum, applies to specified refunds arising from orders that have attained finality and are not paid within the prescribed 60-day period.
What is Section 56 of the CGST Act?
Section 56 is titled “Interest on delayed refunds.”
The provision essentially says that if a tax amount ordered to be refunded under Section 54(5) is not refunded within 60 days from the date of receipt of the refund application under Section 54(1), interest is payable for the period of delay.
The interest begins from the day immediately after the expiry of the 60-day period and continues until the date on which the refund is actually made.
The section contains two important situations:
- Ordinary delayed refund – interest at a notified rate not exceeding 6%.
- Refund arising from a final appellate or judicial order – interest at a notified rate not exceeding 9%.
The provision is therefore intended to compensate an eligible applicant when the Government does not release a refund within the statutory time frame.
Why is Section 56 Important?
A taxpayer may legitimately have money refundable under GST but may not receive it immediately after filing the refund application.
For example, a business may claim refund because of:
- Zero-rated supplies;
- Unutilised ITC in eligible circumstances;
- Excess tax payment;
- Refund arising from an appellate order;
- Refund arising from finalisation of provisional assessment;
- Other circumstances recognised under Section 54.
GST law therefore establishes a time-bound refund mechanism.
If the refund remains unpaid beyond the statutory period, Section 56 provides interest to the eligible applicant.
This means that the taxpayer is not simply required to wait indefinitely for the refund without any statutory interest consequence.
The 60-Day Rule
The central feature of Section 56 is the 60-day period.
Where a refund is due under Section 54(5), the tax should ordinarily be refunded within 60 days from the date of receipt of the refund application under Section 54(1).
If the refund is not made within those 60 days, interest becomes payable.
The interest period begins on:
The day immediately after expiry of 60 days
and continues until:
The date on which the refund is made.
CBIC has clarified that, for this purpose, a refund is considered to have been made when the amount is credited to the bank account of the claimant, rather than merely when an internal sanction order is passed.
When Does Interest on Delayed Refund Start?
Suppose a taxpayer files a valid refund application and the relevant application is received on 1 April.
The statutory 60-day period runs from the date of receipt of the application.
If the refund is not paid within those 60 days, interest starts from the day immediately following the expiry of the 60-day period.
The important point is that interest does not normally start from the date of filing the refund application.
It starts only after the statutory 60-day period has expired.
The calculation can therefore be represented as:
Refund application received → 60-day statutory period → Interest begins → Refund credited
What is the Rate of Interest Under Section 56?
Section 56 itself establishes maximum rates and authorises the Government to specify the applicable rate through notification on the recommendations of the GST Council.
For ordinary delayed refunds, the rate cannot exceed 6% per annum.
For specified refunds arising from final orders of adjudicating authorities, Appellate Authorities, Appellate Tribunals or courts, the rate cannot exceed 9% per annum.
CBIC has notified 6% for the ordinary delayed-refund situation through Notification No. 13/2017-Central Tax dated 28 June 2017. CBIC has also explained that interest at this rate is payable when a refund ordered under Section 54 is not paid within 60 days.
The distinction between the ordinary and special category is important because the 9% ceiling does not mean that every delayed GST refund automatically attracts 9% interest.
Ordinary Refund vs Refund Arising From an Appellate or Judicial Order
Section 56 distinguishes between ordinary refund claims and certain refunds that arise from orders passed by authorities or courts.
Ordinary Refund
Where a refund is ordered under Section 54(5) and is not paid within 60 days from receipt of the refund application, interest is payable at the notified rate, subject to the 6% statutory ceiling.
Refund Arising From a Final Order
Where the refund arises from an order passed by:
- An adjudicating authority;
- Appellate Authority;
- Appellate Tribunal; or
- Court,
and that order has attained finality, a higher interest provision applies if the refund is not made within 60 days from receipt of the consequential refund application.
The statutory ceiling for this category is 9% per annum.
This higher rate is therefore connected to a specific statutory category and should not be confused with the ordinary 6% delayed-refund provision.
What Does “Order Has Attained Finality” Mean?
The phrase “attained finality” is important in the second part of Section 56.
A refund arising from an order of an adjudicating authority, Appellate Authority, Appellate Tribunal or court does not automatically fall into the higher-interest category merely because an order has been issued.
The statutory provision specifically refers to an order that has attained finality.
In practical terms, the relevant proceedings and appeal position must be examined to determine whether the order has become final for the purpose of the provision.
Therefore, businesses should maintain the relevant:
- Assessment orders;
- Appeal orders;
- Tribunal orders;
- Court orders;
- Communication records;
- Appeal-status information; and
- Refund application records.
These documents may be important when determining the applicable interest provision.
When Does the 9% Interest Provision Apply?
The higher statutory ceiling applies where all the relevant conditions are satisfied.
Broadly, the situation involves:
- A refund arising from an order of an adjudicating authority, Appellate Authority, Appellate Tribunal or court;
- The order has attained finality;
- The applicant files the consequential refund application; and
- The refund is not made within 60 days from receipt of that application.
In such a situation, interest is payable at the notified rate subject to the statutory maximum of 9%.
It should not be interpreted as meaning that every refund connected with an appeal automatically attracts 9%.
Date of Receipt of Refund Application
The starting point of the 60-day period is the date of receipt of the refund application.
This is important because the applicant needs to establish when the application was actually received for purposes of calculating delayed-refund interest.
Under the GST electronic refund system, the application is generated electronically and receives an Application Reference Number (ARN).
CBIC has explained that the 60-day period is counted from the date of receipt of the refund application and that interest is calculated after expiry of that period where the refund remains unpaid.
Therefore, businesses should preserve:
- ARN;
- Application date;
- Acknowledgement;
- Refund order;
- Payment advice; and
- Bank credit date.
These records can help establish the period of delay.
Refund Is Not Complete Merely Because an Order Is Passed
One important practical point is that a refund should not be considered paid merely because the proper officer has passed a sanction order.
CBIC has clarified that the refund is considered made when the amount is credited to the claimant’s bank account.
For example, suppose:
- Refund application is received on 1 January.
- Refund is sanctioned on 20 February.
- Payment reaches the taxpayer’s bank account on 15 March.
The relevant payment date for determining the delayed-refund period is the date the amount is actually credited, subject to the applicable statutory framework.
This distinction can be important when there is a gap between the sanction order and actual payment.
How is Interest on Delayed Refund Calculated?
The basic calculation can be expressed as:
Interest = Refund Amount × Interest Rate × Number of Days of Delay ÷ 365
For example, suppose:
- Eligible delayed refund = ₹5,00,000
- Applicable interest rate = 6% per annum
- Delay after the statutory 60-day period = 30 days
The approximate interest would be:
₹5,00,000 × 6% × 30 ÷ 365
= approximately ₹2,466
The actual calculation depends on the precise dates and the amount to which interest is legally applicable.
The taxpayer should therefore calculate the delay based on the actual statutory dates rather than using an approximate month-based calculation.
Example of Ordinary Delayed Refund
Suppose a business files a refund application for ₹4,00,000.
The application is received on 1 January.
The 60-day statutory period expires at the end of the applicable 60-day period.
If the refund is credited after an additional 20 days, the taxpayer becomes entitled to interest for those 20 days at the notified rate, assuming the refund is otherwise covered by Section 56.
The interest does not generally run from 1 January. It begins after expiry of the 60-day statutory period.
Example of Refund Arising From an Appellate Order
Suppose a taxpayer wins an appeal and the resulting order establishes that ₹10,00,000 is refundable.
The order attains finality.
The taxpayer files the consequential refund application.
If the refund is not paid within the prescribed 60-day period after receipt of that application, the special interest provision in Section 56 becomes relevant.
The applicable notified rate is subject to the statutory ceiling of 9%.
The taxpayer should retain the final appellate order and evidence establishing the date on which the order attained finality.
Interest Is Compensation for Delay
The interest under Section 56 serves an important financial purpose.
When a taxpayer is legally entitled to receive a refund, the Government is effectively holding an amount that should ultimately be returned to the taxpayer.
The statutory interest mechanism provides compensation for the period during which the eligible refund remains unpaid beyond the prescribed period.
This is why Section 56 is linked directly to the time-bound refund mechanism under Section 54.
Section 54 and Section 56
Sections 54 and 56 should be read together.
Section 54
Section 54 primarily deals with:
- Who can claim refunds;
- Types of refunds;
- Time limit for refund applications;
- Refund of unutilised ITC;
- Provisional refunds;
- Refund processing;
- Unjust enrichment;
- Withholding and adjustment of refunds; and
- Other refund-related matters.
Section 56
Section 56 deals with:
- Interest on delayed refunds;
- The 60-day period;
- The ordinary interest ceiling of 6%;
- The special interest ceiling of 9%; and
- The period for which interest is payable.
In simple terms:
Section 54 = Refund framework
Section 56 = Interest for delayed payment of eligible refunds
Section 56 and Section 54(5)
Section 56 specifically refers to tax ordered to be refunded under Section 54(5).
Section 54(5) provides the mechanism through which the proper officer, after examination of the application, orders the refund of the amount due.
Therefore, the sequence is broadly:
Refund application → Examination → Refund becomes due → Refund order → Payment
If the refund is not paid within the statutory period, Section 56 can result in interest liability.
Section 56 and Section 54(6)
Section 54(6) deals with provisional refund in specified cases, particularly eligible zero-rated supplies.
Section 56 is principally linked to the refund ordered under Section 54(5).
Therefore, taxpayers should not automatically assume that every provisional refund delay is treated in exactly the same way as the final refund under Section 54(5).
The specific statutory provision and the nature of the refund claim must be examined.
Section 56 and Provisional Refund
A qualifying taxpayer may receive a provisional refund of 90% of the amount claimed in specified zero-rated supply cases under Section 54(6), subject to the conditions prescribed under the law.
The remaining amount is examined and finally determined.
The refund rules prescribe the process for provisional refund, including FORM GST RFD-04 and payment advice in FORM GST RFD-05.
Section 56 primarily concerns interest on refunds that fall within its statutory scope, so the taxpayer should identify the precise stage and nature of the refund before calculating interest.
Interest and Refund Sanction Order
The refund rules provide a specific mechanism for sanctioning interest on delayed refunds.
Where interest is payable under Section 56, the proper officer makes an order along with payment advice in FORM GST RFD-05.
The order specifies:
- The refund amount that was delayed;
- The period of delay; and
- The amount of interest payable.
The interest is electronically credited to the applicant’s bank account.
Therefore, interest under Section 56 is not merely a theoretical entitlement; the refund rules provide a procedural mechanism for determining and paying it.
FORM GST RFD-05 and Delayed Refund Interest
FORM GST RFD-05 is used as the payment advice in the refund process.
CBIC’s refund rules specifically state that where interest is payable under Section 56, the proper officer shall make an order along with a payment advice in FORM GST RFD-05, specifying the delayed refund amount, the period of delay and the interest amount.
The amount is then electronically credited to the bank account of the applicant.
Does Interest Start From the Date of Filing?
Not ordinarily.
The statutory wording provides that interest begins from the date immediately after the expiry of 60 days from the date of receipt of the refund application.
Therefore:
Date of application ≠ Date from which Section 56 interest ordinarily begins
Instead:
Date of application → 60 days → Interest begins on the following day
This is one of the most important points for calculating delayed-refund interest.
What If the Refund Is Credited Before 60 Days?
If the eligible refund is paid within the statutory 60-day period, Section 56 interest for delayed refund does not arise merely because the taxpayer had filed a refund application.
The interest mechanism is triggered when the statutory period is exceeded.
Therefore, timely refund payment prevents the Section 56 delayed-interest liability from arising.
What If the Refund Is Partially Paid?
Where only part of a refund is paid and the remaining amount is delayed, the precise amount and period of delay need to be examined.
Interest should be calculated with reference to the amount that remains refundable and unpaid, subject to the statutory provisions and the refund order.
Businesses should reconcile:
- Amount claimed;
- Amount sanctioned;
- Amount provisionally paid;
- Amount adjusted;
- Amount finally refundable;
- Amount actually credited; and
- Applicable interest.
This helps avoid errors in the interest calculation.
Refund Adjustment and Delayed Interest
Section 54 permits adjustment of refund against certain outstanding liabilities in the circumstances specified by the Act.
Therefore, when calculating delayed-refund interest, it is important to distinguish between:
- Amount actually refundable;
- Amount legally adjusted against outstanding dues; and
- Amount required to be paid to the taxpayer.
The refund order and payment records should be examined to determine the amount and period relevant for Section 56.
Difference Between Refund and Interest on Refund
The refund and the interest are two separate amounts.
Refund
This is the principal amount that becomes refundable under GST law.
Interest
This is the additional amount payable under Section 56 because the eligible refund was not paid within the statutory period.
For example:
Refund = ₹8,00,000
Interest for qualifying delay = ₹20,000
The taxpayer receives the refundable amount along with the applicable interest, subject to the statutory conditions.
Section 56 vs Section 50
Section 56 and Section 50 both deal with interest, but they operate in different situations.
| Particular | Section 50 | Section 56 |
|---|---|---|
| Subject | Interest payable by taxpayer in specified cases | Interest payable on delayed refunds |
| Main situation | Delayed payment of tax / specified ITC-related interest | Delayed payment of eligible refund |
| Direction of payment | Taxpayer pays interest to Government | Government pays interest to eligible applicant |
| Related provision | Tax payment and liability | Refund under Section 54 |
| Purpose | Compensate for specified delay in tax payment | Compensate for specified delay in refund payment |
Therefore, Section 50 should not be confused with Section 56.
Section 56 vs Late Fee
Interest under Section 56 is also different from a GST late fee.
A late fee is generally associated with delayed filing of specified GST returns or documents.
Interest under Section 56 is associated with delay in paying an eligible refund.
For example:
- Late filing of a return → Possible late fee
- Delayed payment of tax → Possible interest under Section 50
- Delayed eligible refund → Interest under Section 56
These are separate statutory concepts.
Section 56 vs Penalty
A penalty is imposed for specified contraventions of GST law.
Section 56 interest is not a penalty.
It is a statutory financial consequence associated with delayed payment of an eligible refund.
Therefore, a taxpayer receiving Section 56 interest should not treat it as a penalty imposed on the tax authority.
Documentation Required for Delayed Refund Interest
A taxpayer claiming or verifying interest under Section 56 should maintain records such as:
- Refund application;
- ARN;
- Date of receipt;
- RFD-02 acknowledgement;
- RFD-03 deficiency memo, if any;
- RFD-06 refund order;
- RFD-05 payment advice;
- Bank statement showing actual credit;
- Relevant appellate order, where applicable;
- Proof that the appellate order attained finality;
- Refund calculation;
- Interest calculation;
- Correspondence with the department.
These documents can establish the timeline and help determine the correct interest period.
Common Mistakes in Section 56 Interest Calculation
1. Starting interest from the application date
The ordinary statutory calculation begins after expiry of the 60-day period, not immediately from the application date.
2. Using the sanction date as the refund date
CBIC has clarified that the refund is considered made when the amount is credited to the claimant’s bank account.
3. Applying 9% to every delayed refund
The 9% ceiling applies to the specific category of refunds arising from final orders described in the proviso to Section 56.
Ordinary delayed refunds are subject to the notified rate under the main provision, currently within the 6% statutory ceiling.
4. Ignoring the finality of an appellate order
For the special higher-interest provision, the relevant order must have attained finality.
5. Calculating delay using months instead of days
Interest should be calculated using the actual number of days of qualifying delay.
6. Ignoring partial payments or adjustments
The amount actually refundable and unpaid should be established before calculating interest.
Practical Example of Interest Calculation at 6%
Suppose:
- Refund amount = ₹10,00,000
- Application received = 1 January
- Statutory 60-day period = 60 days
- Refund credited = 20 April
- Applicable interest rate = 6%
Assume the qualifying delay after expiry of the 60-day period is 49 days.
The interest can be calculated as:
₹10,00,000 × 6% × 49 ÷ 365
= approximately ₹8,055
The exact number of qualifying days should be calculated from the statutory dates applicable to the particular claim.
Practical Example of 9% Interest
Suppose:
- Refund arising from a final appellate order = ₹15,00,000
- Refund application is filed after the order becomes final
- Refund is not paid within the applicable 60-day period
- Qualifying delay = 40 days
- Applicable notified interest rate = 9%
The illustrative interest would be:
₹15,00,000 × 9% × 40 ÷ 365
= approximately ₹14,795
The 9% figure in this example applies only because the claim falls within the special category contemplated by the proviso to Section 56 and the applicable notified rate is assumed for illustration.
Relationship With Section 54(8)
Section 54(8) identifies circumstances in which a refund is paid to the applicant rather than being credited to the Consumer Welfare Fund.
This is relevant because Section 56 applies to a refund payable to an applicant under the statutory refund framework.
Therefore, before examining interest on a delayed refund, the taxpayer should first establish that the underlying amount is actually refundable to the applicant.
Section 56 does not independently create a refund entitlement where no refund is otherwise due.
Relationship With Section 55
Section 55 provides a special refund mechanism for certain notified persons such as specified international organisations, embassies and consulates.
Section 56 deals with interest on delayed refunds falling within its statutory scope.
Therefore, a Section 55 claimant should first determine the refund entitlement under Section 55 and the applicable notification and rules, and then examine whether Section 56 interest becomes payable due to delayed payment of the eligible refund.
Relationship With Section 77
Section 77 deals with certain situations where tax has been paid under an incorrect classification of intra-State or inter-State supply.
Where such a situation results in a refund claim, the refund procedure under the applicable provisions must be followed.
If the resulting refund falls within the statutory scope of Section 56 and is delayed beyond the prescribed period, the interest provision may become relevant.
Importance for Exporters
Section 56 is particularly relevant to exporters and businesses making zero-rated supplies because such businesses may have significant refund claims.
Exporters can face substantial working-capital implications when refund processing takes time.
The statutory interest mechanism provides a financial consequence for qualifying delays beyond the prescribed period.
Businesses involved in exports should therefore track:
- Refund application date;
- ARN;
- Acknowledgement date;
- Refund sanction date;
- Payment date;
- Bank credit date; and
- Interest received.
This information can also help with accounting and reconciliation.
Accounting Treatment of Refund Interest
Businesses should separately identify:
- Principal GST refund;
- Interest on delayed refund;
- Other adjustments;
- Outstanding GST liabilities; and
- Amount actually credited to the bank.
The interest component should be reconciled with the department’s refund order and payment advice.
Businesses should also follow their applicable accounting and tax treatment after consulting their finance or tax professional.
Key Points of Section 56
The major points of Section 56 can be summarised as follows:
- Section 56 deals with interest on delayed refunds.
- It is closely linked with the refund mechanism under Section 54.
- The ordinary statutory period for payment is 60 days from receipt of the refund application.
- Interest begins from the day immediately after expiry of the 60-day period.
- The ordinary interest rate is notified by the Government and cannot exceed 6% per annum.
- CBIC has notified 6% for the ordinary delayed-refund situation.
- A special category of refund arising from a final order of an adjudicating authority, Appellate Authority, Appellate Tribunal or court can attract a notified rate subject to a statutory ceiling of 9% per annum.
- The relevant order must have attained finality for the special provision to apply.
- Refund is treated as made when the amount is credited to the claimant’s bank account, according to CBIC’s clarification.
- The interest amount is processed through the prescribed refund procedure.
- Rule 95 and other refund provisions should be considered where special categories of claimants are involved.
- Section 56 does not independently create a refund entitlement; the underlying refund must first be legally due.
Conclusion
Section 56 of the CGST Act, 2017 provides an important safeguard for taxpayers whose eligible GST refunds are not paid within the statutory period.
The provision establishes a basic 60-day timeframe for payment of refunds covered by Section 54(5). If the refund remains unpaid beyond this period, interest becomes payable at the notified rate, subject to the statutory ceiling of 6% for the ordinary category. A separate provision applies to certain refunds arising from orders of adjudicating authorities, Appellate Authorities, Appellate Tribunals or courts that have attained finality, with a statutory ceiling of 9%.
For practical purposes, taxpayers should carefully record the refund application date, ARN, acknowledgement, refund order and actual bank-credit date. The actual date on which the refund reaches the taxpayer’s bank account is particularly important when determining the period of delay. CBIC has specifically clarified that mere issuance of a sanction order does not by itself mean that the refund has been paid.
Section 56 should therefore be read together with Section 54 and the CGST Rules. Section 54 establishes the refund framework, while Section 56 provides the interest consequence when an eligible refund is delayed beyond the prescribed period.
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