Interest on Late GST Payment: 18% on the Cash Portion, and How the Portal Works It Out
Interest on late GST payment is 18% a year on the tax paid in cash, not the full liability. Interest also applies at 18% on input tax credit wrongly claimed and used. Interest is separate from the late fee for filing returns late. Check the portal's figure before paying.
A GSTR-3B filed five days late costs a late fee and interest. Many small businesses confuse the two, and many overpay interest by calculating it on the full tax liability instead of the cash portion.
The rules
| Situation | Interest |
|---|---|
| Tax paid late | 18% a year, on the tax paid in cash, for the days of delay |
| Input tax credit wrongly claimed and used | 18% a year on the credit used, from the date of use until it is reversed or paid |
| Credit wrongly claimed but not used (enough balance kept in the credit ledger) | No interest |
Interest on late payment is calculated on the net cash liability: the tax paid in cash after using available credit. This was made law with retrospective effect from July 2017.
Interest and late fee are different
| Interest | Late fee | |
|---|---|---|
| Why | Compensation for late tax | Penalty for a late return |
| Applies to | Tax paid late | Return filed late, even nil |
| Rate | 18% a year | Fixed per day, capped |
| Paid from | Cash ledger | Cash ledger |
A worked example
A Rajkot trader's GSTR-3B for August 2026 shows ₹5,00,000 output tax and ₹3,80,000 credit. Net cash payable: ₹1,20,000. Due 20 September; filed and paid 30 September (10 days late).
- ✓Interest = ₹1,20,000 × 18% × 10 ÷ 365 = ₹592.
- ✓Late fee: ₹50 a day (₹20 for a nil return), up to the cap for the turnover, plus interest.
If interest had been worked out on ₹5,00,000, it would have been ₹2,466. That is the most common overpayment.
How the portal handles it
The GST portal works out interest on late payment based on the cash paid, and shows it in the next GSTR-3B for you to pay. Check the figure. If you paid part of the tax earlier through the electronic cash ledger, interest should only run on what was paid late.
How to avoid it
- ✓File and pay GSTR-3B by the due date, even if a few purchase invoices are pending. Claim the rest next month.
- ✓Keep cash in the electronic cash ledger before the due date.
- ✓Do not claim credit you are unsure of. If you must, keep enough credit unused in the ledger so no interest arises.
Frequently asked questions
Is interest deductible for income tax?
Interest on late GST is generally treated as compensatory and deductible, but penalties are not. Confirm with your CA.
Can I pay interest through DRC-03?
Yes, for amounts you discover and pay voluntarily.
Does interest apply to quarterly filers?
Yes, on the quarterly return's cash liability and on monthly payments made late.
Sources
- ✓GSTN advisory on interest computation in GSTR-3B, TaxGuru
- ✓Advisory on interest collection in GSTR-3B, GST portal
- ✓GST late fee calculator, Sleet
This is a summary, not legal advice. Confirm with your chartered accountant.
Written by
Founder, Airwix Technologies (Sleet)
Vatsal Sutariya is the founder of Airwix Technologies in Ahmedabad, the company that builds Sleet: SleetHR for HR and payroll, and Sleet Accounting for GST billing and books. He writes about GST, invoicing, business tax and choosing software for Indian businesses, and checks each rule against the official notification before it is published.
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