GST Payments and Refunds: Calculation, Due Dates and Penalty

GST payments and refunds deal with the most sensitive part of GST compliance. Money. Businesses must pay GST after adjusting input tax credit and claim refunds where tax is paid in excess or credit accumulates. While the process is largely automated on the GST portal, mistakes in payment or refund claims are still common.

Key Takeaways

• GST payment is usually made while filing GSTR-3B
• Net GST payable is calculated after adjusting input tax credit
• Interest at 18% per year applies if GST is paid late
• GST refunds must usually be claimed within two years
• Refund applications are filed online through Form GST RFD-01

What is GST Payment and Refund?

GST payment is the settlement of tax liability by a registered taxpayer under the GST law. A business collects GST from customers on sales. At the same time it pays GST on purchases. The difference between these two becomes the tax payable to the government.

Sometimes the situation reverses. A taxpayer pays more tax than required or accumulates unused credit. In such cases the excess amount can be claimed back as a GST refund.

In practice, refund claims are most common for exporters and businesses facing inverted duty structures.

What are Payments to be made under GST?

Under GST, tax is divided into three categories based on the nature of supply.

Example

Businesses usually understand this concept in theory. In practice, classification errors still happen. Especially when goods move through multiple warehouses.

Apart from the main GST liability, taxpayers may also need to deal with the following payments.

Tax Deducted at Source (TDS)

Certain government departments and notified entities must deduct GST TDS at 2% when making payments to suppliers.

Example.
A government department awards a construction contract worth ₹10 lakh. At the time of payment, ₹20,000 is deducted as GST TDS and deposited with the government. The supplier receives the balance amount.

The deducted amount appears in the supplier’s electronic cash ledger.

Tax Collected at Source (TCS)

E-commerce operators are required to collect TCS at 1% on the net value of supplies made through their platform. This amount is deposited with the government and becomes available as credit to the seller.

Many small sellers first notice TCS only when they reconcile their GST portal data with marketplace reports.

Reverse Charge Mechanism

Under reverse charge, the responsibility to pay GST shifts from the supplier to the recipient.
This applies in certain notified cases such as:

• legal services from advocates
• import of services
• specific notified supplies

Businesses often miss reverse charge liability during vendor onboarding. The exposure usually surfaces during audits.

Interest, Penalty, Fees and Other Payments

Apart from GST itself, taxpayers may need to pay:

• interest for delayed tax payment
• late fees for delayed return filing
• penalties under GST law

These amounts must be paid in cash. Input tax credit cannot be used for them.

How to Calculate the GST Payment to be made?

GST payment is calculated after adjusting input tax credit against output tax liability.

In simple terms:
GST payable = Output tax liability – Eligible ITC

If TDS or TCS credit is available, it reduces the payable amount.
If there is delay, interest and late fees are added.

One mistake businesses still make is assuming all credit can be used freely. It cannot. Credit utilisation follows specific rules and ledger balances.

Regular Dealer

A regular GST taxpayer charges GST on sales and claims input tax credit on purchases.

Example.
A business collects GST of ₹1,00,000 on sales. It has ITC of ₹70,000 from purchases.
The GST payable becomes ₹30,000.

Composition Dealer

Composition taxpayers follow a different approach. They pay GST at a fixed rate on turnover. No input tax credit is allowed.

Typical rates are:

Composition works well for small businesses. But once turnover increases, the limitations become obvious.

Who should make the Payment?

GST payment is required in several situations.

• A registered taxpayer with GST liability
• A taxpayer liable under reverse charge
• An e-commerce operator collecting TCS
• A deductor required to deposit GST TDS
• Any taxpayer liable for interest or penalties

Even businesses with low tax liability must monitor this closely. Missing small liabilities repeatedly invites notices.

When should GST Payment be made?

GST payment is made when filing GSTR-3B. The due date usually falls in the following month.

The GST portal does not allow the return to be filed unless the liability is fully discharged.

What are the Electronic Ledgers?

Every GST taxpayer has three electronic ledgers on the GST portal.

These ledgers work together to settle GST dues. 
Most reconciliation problems start here. Businesses see a number in their ERP but a different balance in the GST portal.

How to make GST Payment?

GST can be paid in two ways.

Payment through Credit Ledger

The credit ledger contains input tax credit. This credit can be used to pay GST liability. But it cannot be used to pay interest, penalties or late fees. That restriction catches many taxpayers off guard.

Payment through Cash Ledger

Cash payments are made after generating a challan in Form GST PMT-06.

Common payment modes include:

• internet banking
• debit or credit card
• NEFT or RTGS
• over-the-counter payment within limits

Once the payment is made, the amount appears in the electronic cash ledger and can be used to offset liability.

What is the Penalty for Non-Payment or Delayed Payment?

If GST is not paid on time, interest applies. The current interest rate is 18% per year on the unpaid amount.

There is also a penalty. The penalty is the higher of:

• ₹10,000 Or
• 10% of the tax amount

If the non-payment involves fraud or deliberate suppression, the penalty can reach 100% of the tax amount. In real cases, the interest component often becomes larger than the tax itself when issues remain unresolved for years.

What is GST Refund?

GST refund arises when a taxpayer has paid more tax than required or has accumulated unused input tax credit.

This situation commonly occurs in:

• exports of goods or services
• supplies to SEZ units or developers
• inverted duty structures
• excess tax payment

Refund processing has improved over the years, but documentation errors still slow down claims.

When can the Refund be Claimed?

GST refund can be claimed in several situations.

Some common cases include:

• excess tax paid due to mistake
• exports of goods or services
• supplies made to SEZ units or developers
• accumulated ITC due to inverted duty structure
• refund of tax paid by embassies
• finalisation of provisional assessment
• deemed exports

Exporters usually deal with refund claims more frequently than other taxpayers.

How to Calculate GST Refund?

Refund calculation depends on the nature of the claim.

Consider a simple example.
A taxpayer’s GST liability for a month is ₹50,000. Due to an error, the taxpayer pays ₹5,00,000.

The excess payment of ₹4,50,000 becomes eligible for refund. In such cases the taxpayer can either claim a refund or leave the amount in the electronic cash ledger for future use.

What is the Time Limit for Claiming the Refund?

The general time limit for claiming a GST refund is two years from the relevant date. The relevant date depends on the type of refund.

If the refund is not processed within 60 days, interest at 6% per year becomes payable by the government.

How to Claim GST Refund?

GST refunds are claimed online using Form GST RFD-01 on the GST portal. The typical process works like this.

1. The taxpayer logs into the GST portal.
2. Selects the refund category.
3. Uploads invoice details and supporting documents.
4. Submits the application electronically.

Recent system changes have also modified the way certain refunds are filed.

For exports with tax payment, supplies to SEZ units with tax payment and deemed exports, taxpayers now submit invoice-level details instead of selecting a tax period. Relevant statements must also be uploaded.

Another change relates to refund claims arising from assessment or appellate orders. Refund applications may now be allowed even when demand IDs are still reflected in the system, provided the balance shows a negative amount.

These changes have reduced some of the earlier system restrictions. But careful documentation is still essential.