Section 56: Interest on a Delayed Refund, at 6% or 9%

Section 56 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.

The department pays interest for holding a refund too long. Two rates apply, and the higher one is available more often than claimants realise.

Section 56: if any tax ordered to be refunded under s.54(5) is not refunded within sixty days from the date of receipt of application under s.54(1), interest at a rate not exceeding six per cent, as notified, shall be payable for the period of delay beyond sixty days from the date of receipt of such application till the date of refund. The proviso: where the refund arises from an order passed by an adjudicating authority, Appellate Authority, Appellate Tribunal or court which has attained finality, and is not refunded within sixty days of the application filed consequent to that order, interest at a rate not exceeding nine per cent applies.

The two rates

Six per cent — the ordinary case. A refund sanctioned under s.54(5) and paid late.

Nine per cent — where the refund arises from an order that has attained finality, whether of an adjudicating authority, an Appellate Authority, the Appellate Tribunal or a court.

The distinction is not about who delayed. It is about where the entitlement came from.

The Explanation, and why it widens the 9%

"Explanation. — For the purposes of this section, where any order of refund is made by an Appellate Authority, Appellate Tribunal or any court against an order of the proper officer under sub-section (5) of section 54, the order passed by the Appellate Authority, Appellate Tribunal or by the court shall be deemed to be an order passed under the said sub-section (5)."

So where a refund was rejected by the proper officer and the rejection is overturned on appeal, the appellate order is deemed to be a s.54(5) sanction order.

The practical consequence: a claimant who wins on appeal, files the consequential refund application, and is not paid within sixty days, is entitled to 9%, not 6%.

That is a meaningful sum on a claim that has been in dispute for years — and it is frequently not claimed.

When the sixty days start

"From the date of receipt of application under sub-section (1) of that section."

Read with s.54(7), which requires the sanction order within sixty days from the date of receipt of application complete in all respects, the reference point is a complete application.

Which is why the deficiency memo matters so much. Rule 90(3) requires a fresh application after rectification, and the sixty days run from that application. Rules 90 and 92: acknowledgement, deficiency and sanction →

The same logic applies to Rule 96(1): where a mismatch between the shipping bill and GSTR-1 postpones the deemed filing date, the sixty days run from the rectified date. Rule 96: the shipping bill as a refund application →

Rule 94: the mechanism

Where an interest amount is payable under s.56, the proper officer shall make an order along with a payment order in FORM GST RFD-05, specifying the amount of refund which is delayed, the period of delay for which interest is payable, and the amount of interest payable.

Two points:

The order is separate from the refund order. Interest is quantified in its own order, and a refund paid without it does not extinguish the entitlement.

It should be automatic. In practice, it frequently is not, and the claimant has to pursue it — by application, and if necessary by writ, since a failure to pay statutory interest is a failure to comply with the section rather than a discretionary matter.

What is excluded from the delay

The period of a deficiency memo cycle, because a fresh application restarts the clock.

The period during which the refund is lawfully withheld under s.54(10) or (11), though where the withholding is later found unjustified, the position is arguable.

Delay attributable to the applicant — for instance, failure to respond to an RFD-08 notice within the fifteen days allowed by Rule 92(3).

Provisional refund under s.54(6). Interest under s.56 attaches to the refund ordered under s.54(5). The 90% provisional refund is under s.54(6), and Rule 91(2) requires the RFD-04 order within seven days — a separate and shorter timeline with no interest provision of its own.

Section 54(12): interest on a withheld refund

A related and distinct provision. Where a refund is withheld under s.54(11) — pending appeal or other proceedings, where the Commissioner is of the opinion that grant of refund is likely to adversely affect revenue on account of malfeasance or fraud — and the person subsequently becomes entitled to the refund as a result of the appeal or proceedings, he is entitled to interest at a rate not exceeding six per cent as notified.

So a withheld refund that is later released carries interest under s.54(12), not s.56.

Key takeaways

• Six per cent where a s.54(5) refund is paid more than sixty days after a complete application.
• Nine per cent where the refund arises from an order that has attained finality.
• The Explanation deems an appellate or court order overturning a rejection to be a s.54(5) order — so 9% applies.
• The sixty days run from a complete application; a deficiency memo restarts it.
• Rule 94 requires a separate order quantifying the interest, issued with RFD-05.
• A withheld refund later released carries interest under s.54(12) at up to six per cent.

Read next

• Rules 90 and 92: Acknowledgement, Deficiency and Sanction
• Rule 96: The Shipping Bill as a Refund Application
• Common Reasons for GST Refund Rejection
• Provisional Refund for Inverted Duty Structure

Disclaimer: Positions stated as on 5 September 2026, based on the CGST Act and Rules as amended to 31 March 2026 (ICAI Bare Law, 12th edition) and the ICAI Handbook on Refunds under GST (January 2026).