Interest on late GST payment is charged at 18% a year under section 50 of the CGST Act, but the amount it applies to depends on why the payment was late. If you filed GSTR-3B late but declared that month's supplies in it, interest runs only on the part of tax you paid in cash. Leave an invoice out and pay its tax in a later month, and interest runs on the whole unpaid tax. Where input tax credit was claimed wrongly, interest runs only on the part actually used. Each case has its own formula in Rule 88B of the CGST Rules, and each is worked through below with numbers.
Three situations, three bases for interest
Section 50 has two charging provisions. Section 50(1) covers tax not paid within the prescribed period, and section 50(2) says interest is counted from the day after the tax fell due. Section 50(3) covers input tax credit (ITC) that was wrongly availed and utilised. Rule 88B was inserted by Notification 14/2022-Central Tax dated 5 July 2022 and is deemed to apply from 1 July 2017. It turns these into three calculation rules:
- Rule 88B(1): supplies declared in the return for the correct tax period, but the return filed after the due date. Interest is on the tax paid by debiting the electronic cash ledger, for the period of delay.
- Rule 88B(2): all other delayed payment under section 50(1). Interest is on the tax that remained unpaid, from the due date until it is paid.
- Rule 88B(3): ITC wrongly availed and utilised. Interest is on the utilised amount, from the date of utilisation until the credit is reversed or the tax is paid.
Before calculating anything, decide which bucket each amount falls into. Most errors in interest working come from putting an omitted invoice into the first bucket, or treating every wrong ITC entry as if it had been used.
The rate is 18% in both cases
The notified rate for section 50(1) is 18% a year under Notification 13/2017-Central Tax, effective 1 July 2017. The original notification fixed 24% for section 50(3). The GST Council at its 45th meeting recommended that interest on ineligible ITC be charged only when it is availed and utilised, at 18% with effect from 1 July 2017, and the Finance Act, 2022 carried this out. Section 50(3) as it now reads was substituted by section 111 of the Finance Act, 2022 with effect from 1 July 2017 and brought into force on 5 July 2022.
The rate is annual, so the arithmetic is a day count. The GST portal's own advisory on its GSTR-3B interest calculator states the formula as tax amount × days of delay ÷ 365 × rate. The same method is used in every example below.
Late GSTR-3B: interest only on the cash portion
The proviso to section 50(1) deals with a return filed after the due date that still declares the supplies of that tax period. In that case interest is levied only on the tax paid by debiting the electronic cash ledger. Tax set off from the electronic credit ledger (your ITC balance) does not attract interest.
The due date is the GSTR-3B due date under Rule 61 of the CGST Rules. For monthly filers it is the 20th of the following month. Quarterly (QRMP) filers have the 22nd or 24th of the month after the quarter, depending on the State.
Worked example: August 2026 return filed 20 days late
Say a monthly filer in Maharashtra has August 2026 output tax of ₹8,00,000 and eligible ITC of ₹5,50,000. The GSTR-3B was due on 20 September 2026 and was filed on 10 October 2026. The business pays ₹2,50,000 in cash while filing.
- Days of delay: 21 September to 10 October 2026, which is 20 days.
- Interest: ₹2,50,000 × 18% × 20 ÷ 365 = ₹2,466 (rounded).
- For comparison, interest on the gross ₹8,00,000 would have been ₹7,890. The proviso cuts it by about two-thirds here because most of the tax was set off from ITC.
If the ITC balance had covered the entire liability, the cash portion would be nil and so would the interest. The late fee is a separate charge and is not reduced by this.
Cash deposited before the due date is excluded
Notification 12/2024-Central Tax dated 10 July 2024 added a proviso to Rule 88B(1). If an amount was credited to the electronic cash ledger on or before the due date and stayed there from the due date until it was debited while filing the late return, it is not counted for interest.
Continuing the example: suppose ₹1,00,000 was deposited through a challan on 18 September and the cash ledger never dropped below that until the return was filed. Interest then runs only on ₹1,50,000: ₹1,50,000 × 18% × 20 ÷ 365 = ₹1,479. The portal calls this the "minimum cash balance" between the due date and the date of debit. Its advisory gives the formula as (net tax liability minus that minimum cash balance) × days delayed ÷ 365 × rate.
A practical point follows. Where a return is certain to be late (for example, because reconciliation is pending), depositing the estimated cash liability by the due date and leaving it in the ledger protects you from interest on that amount. Money moved out in the meantime, for instance through a transfer of cash ledger balance or a refund claim, breaks the minimum balance.
When the relief is lost
The cash-only basis does not apply if the return for that period is filed after proceedings under section 73, 74 or 74A have started for the same period. In that case interest falls under the general rule on the full tax.
Invoice missed and paid in a later month: interest on the whole tax
The net-cash relief is limited to supplies "declared in the return for the said period". A supply left out of July's return and reported in October's is not declared in July's return. It therefore falls under Rule 88B(2), which charges interest on the tax that remained unpaid, from the date it was due to the date it is paid.
Worked example: July invoice reported in October
Say a July 2026 invoice carrying ₹60,000 of GST was missed. The July tax was due on 20 August 2026. The invoice is picked up and reported in the October 2026 GSTR-3B, filed on 20 November 2026.
- Days: 21 August to 20 November 2026, which is 92 days.
- Interest: ₹60,000 × 18% × 92 ÷ 365 = ₹2,722 (rounded).
Rule 88B(2) does not contain the cash-ledger wording that Rule 88B(1) has. An argument that ITC lying in the credit ledger throughout should reduce this interest is a position to defend on your own facts, not the default. The same Rule 88B(2) basis applies where a short payment is discovered later and paid on its own, typically through the DRC-03 voluntary payment route, with the interest worked out to the date of that payment.
Wrong ITC: interest only once it is used
Under section 50(3), interest is payable only where ITC is both wrongly availed and utilised. Credit that was claimed but sat untouched in the ledger must still be reversed, but it carries no interest.
The Explanation to Rule 88B tells you when and how much credit counts as utilised:
- Wrong ITC is treated as utilised when the balance in the electronic credit ledger falls below the amount of wrong ITC.
- The utilised amount is the shortfall, that is, how far the balance has fallen below the wrong ITC.
- The date of utilisation is the GSTR-3B due date or the actual filing date, whichever is earlier, if the balance fell because tax was paid through that return. In any other case it is the date of the debit that took the balance below the wrong ITC.
For this test, Circular 192/04/2023-GST dated 17 July 2023 clarifies that the balances under IGST, CGST and SGST are taken together. Compensation cess credit is left out, because it can be used only for paying cess. So wrongly availed IGST credit carries no interest if the combined IGST, CGST and SGST balance never fell below that amount between availment and reversal.
Worked example: blocked credit partly used
Say a company claims ₹1,00,000 of ITC on a motor car in its June 2026 GSTR-3B, and the credit is blocked. It files the return on 18 July 2026, two days before the due date. After the set-off in that return, the combined IGST, CGST and SGST credit balance is ₹40,000.
- The balance fell below ₹1,00,000 by ₹60,000, so ₹60,000 of the wrong ITC is treated as utilised. The remaining ₹40,000 is availed but not used.
- The fall came from paying tax through the return, so the date of utilisation is the earlier of the due date (20 July) and the filing date (18 July): 18 July 2026.
- The error is found and the full ₹1,00,000 is reversed through DRC-03 on 16 September 2026, which is 60 days after 18 July.
- Interest: ₹60,000 × 18% × 60 ÷ 365 = ₹1,775 (rounded). Charging it on the full ₹1,00,000 would give ₹2,959.
Keep a ledger-balance trail for the period between availment and reversal. Without it, you cannot show that part of the credit stayed unused, and the whole amount tends to be treated as utilised. The same discipline helps when ITC is reversed for unpaid suppliers under the 180-day payment rule.
How interest is paid and reported
Interest has to be paid in cash. Under section 49, the electronic cash ledger can be used for tax, interest, penalty, fee or any other amount, while the electronic credit ledger can be used only for output tax. The Explanation to that section defines "other dues" to include interest. This is why a healthy electronic credit ledger does not help with interest: the challan has to be under the interest minor head in the cash ledger.
There are two ways to report the payment:
- In GSTR-3B, Table 5.1. For a late return, the portal computes interest and auto-populates it in the next period's GSTR-3B. The GSTN advisory states that from the January 2026 tax period this system-computed interest is non-editable downward. You may report more, not less.
- Through Form DRC-03. Use this for interest the portal does not compute, such as interest on an omitted invoice or on wrongly utilised ITC.
If the auto-populated figure looks wrong, check it before paying. A GSTN advisory of March 2026 admitted that interest for the February 2026 period shown in the March 2026 return may have been calculated incorrectly, because some taxpayers did not get the minimum cash balance benefit. It asked them to use the "Re-compute interest" button in Table 5.1, and said the value entered must not be less than the recomputed figure shown in the system-generated GSTR-3B PDF. Keep your own working (tax head, cash balance on each day, days of delay) so you can compare it with the portal's number head by head.
Split the working by tax head as well. CGST, SGST/UTGST and IGST sit under separate heads in the cash ledger. For an intra-State sale, the ₹60,000 in the July example would usually be ₹30,000 CGST and ₹30,000 SGST. The interest of ₹2,722 is then paid as two amounts of ₹1,361, each under the interest minor head of its tax. Paying the whole amount under one head leaves the other head short.
