Summary: The article discusses the author’s view that the GST interest rate under Section 50 of the CGST Act has remained fixed at 18% since the introduction of GST in 2017 despite changes in economic conditions, RBI repo rates and bank deposit rates. It compares India’s delayed tax interest mechanism with those of several countries, noting that many jurisdictions link tax interest to market benchmarks and that several maintain closer parity between interest charged on delayed tax payments and interest paid on refunds. The article also compares India’s refund interest under Section 56 with delayed payment interest under Section 50 and states that GST interest is charged from the day after the tax due date, whereas refund interest begins only after a 60-day period from the refund application. Referring to Pratibha Processors v. Union of India, the article states that the Supreme Court described interest as compensatory in character and distinguishes it from penalties under GST. It also compares interest rates applicable to delayed GST, income tax and customs payments and proposes linking the Section 50 interest rate to the RBI repo rate with an annual margin instead of retaining a fixed 18% rate.
Introduction: Yesterday a client came into my office with the DRC-01 and somewhere in the computation was sitting a familiar figure; INTEREST at 18% per annum. The client said he understood the tax portion, the penalty he may contest; however, the interest is what stings him the most. In his case the tax was due in July -2020 and now paying such tax in July-2026 makes such interest amount amusingly higher than the tax amount i.e. 108% of tax amount due. There is no defence against interest as by the nature it is “automatic”.
For the last nine years interest u/s 50 has sit unchanged while everything around it has moved. I believe it is an appropriate time we start asking the question: “Unchanged with reference to what?”
1. A frozen rate since 2017:
Since the inception of GST law, the interest liability u/s 50 has been 18% per annum and, it has not been a product of any study or any economic analysis done at that point of time. It was for all practical purposes, inherited from the Service tax regime (that operated prior to GST regime), where the rates have ranged between 15% to 24% depending on the delay. The Council opted for 18% as a midway and moved on.
But consider what has happened since then. In 2017, RBI Repo rate stood at 6.25% and a one-year fixed deposit with SBI fetched normally around 6.5-6.9% per annum. During the pandemic the RBI repo rate fell all the way to 4%; barring some temporary notified waivers- the statutory interest stood tall at 18%. Today in mid-2026 the RBI repo rate stands at 5.25% and public sector banks are offering roughly 6.25-6.6%.
In simpler terms, the statute dictates that a taxpayer shall pay the exchequer nearly three times the amount what the same government owned banks would pay him for the same amount for the same period. Measured against the repo rate, the picture is worse: 18% against 5.25% is a multiple of 3.4. Even in 2017 the multiple was 2.9. The rate has not merely stayed harsh — by its own implicit benchmark, it has quietly become harsher, without a single amendment.
2. Comparison of the rest of the world’s deposit rate w.r.t to the Interest on delayed funds:
I fetched up the data of some other large economies around the world- the top economies that levy a VAT or GST or any other similar federal tax and compared their late-payment interest with the prevailing bank deposit rates in those countries. (USA doesn’t have nay federal VAT thus, IRS federal underpayment interest rate is used. China is not in the list because their underpayment interest is penal as well thus not the same. Japan has extremely low deposit rate thus, any comparison becomes meaningless.)
| Country | Interest on Delayed Tax | Mechanism | 1-Yr Deposit Rate | Multiple (Interest ÷ Deposit) | Spread (Points) |
| USA | ~7.0% | Federal short-term rate + 3, reset quarterly | ~4.0% | 1.75x | +3.0 |
| Germany | 1.8% | 0.15% per month; reduced after Constitutional Court ruling (2021) | ~2.0% | 0.9x | –0.2 |
| India | 18% | Fixed by Notification 13/2017-CT; unchanged since | ~6.5% | 2.77x | +11.5 |
| UK | 7.75% | Bank of England base rate + 4; floats automatically | ~4.0% | 1.94x | +3.75 |
| France | 2.4% | 0.20% per month | ~2.0% | 1.2x | +0.4 |
| Italy | 1.6%–4% | Legal rate notified annually (1.6% for 2026) | ~2.0% | 0.8–2.0x | +0.4 |
| Canada | 7% | T-bill linked, reset quarterly, compounded daily | ~3.5% | 2.0x | +3.5 |
| Brazil | ~14.25% | Linked to SELIC policy rate | ~13.5% | 1.06x | +0.75 |
Two important observations from above:
a. The mechanism for Interest rate:
Every country links its interest rate to a market benchmark- Federal rate for USA; Bank of England base rate for England; Canadian T- Bills for Canada and Italy’s annual notified legal rate. When the base rate changes, the tax interest changes. Nobody has to litigate, lobby or file a petition for its validity. However, in India alone the interest rate is fixed and arbitrary that requires to be changed via a notification which has not been issued in the last nine years.
b. The magnitude of interest rate:
On an average the economies are charging 1.55x more than their deposit rates with a spread of about 2 to 4 % points more. In India it is a whopping 2.77x with a spread of about 11.5 % points roughly three times the spread of its peers. Even in Brazil where interest rates are high the economy is charging almost identical interest on taxes with a spread of only +0.75% points.
India should learn from Germany who is 2021 struck down the long standing 6% assessment interest as unconstitutional precisely because it was not pegged with the market rates and forced a reduction of almost 1.8% points via the federal court order. A constitutional court of a major economy has already held that a frozen rate is unconstitutional and not only a bad policy. (Germany does levy a separate 1%-per-month surcharge on late payment of assessed tax, but that is expressly penal in character, which only reinforces the distinction our own Supreme Court drew long ago.)
3. Delayed interest V/s refund interest:
| Country | Charged on Delay | Paid on Refund | Gap (Points) | Symmetric? |
| USA (individuals) | 7% | 7% | 0 | Yes |
| Germany | 1.8% | 1.8% | 0 | Yes |
| France | 2.4% | 2.4% | 0 | Yes |
| Brazil | ~14.25% (SELIC) | ~14.25% (SELIC) | 0 | Yes |
| Canada | 7% | 3%–5% | 2–4 | Moderate |
| UK | 7.75% (base + 4) | 2.75% (base – 1) | 5 | Asymmetric |
| Italy | 1.6%–4% | ~1%–2% | 0–2 | Broadly |
| India | 18% (Sec 50) | 6% (Sec 56); 9% post-appeal | 12 | Widest gap of all |
(Note: Rates as prevailing in mid-2026; US, UK and Canadian rates reset quarterly with market benchmarks. India: interest under Section 50 CGST Act at 18% per Notification 13/2017-CT; refund interest under Section 56 at 6%, rising to 9% only where the refund arises from an appellate or court order.)
The policy making pattern in the above countries is unmistakable. Four of them namely USA, Germany, France and Brazil pay what exactly they charge. Germany treats this as matter of principle as (“full interest both ways”- Vollverzinsung). Even the widest of all gapes in UK is only 5% points.
India’s gap is 12% points. Exchequer charges 3x of what it pays. No comparable economy comes even remotely close.
Effective interest rate on refunds:
In India as per section 50 interest is charged from the next day from when the tax is due however, the interest on refund is only given after a 60-day period from refund application. That makes the blanket comparison of 6% vs 18% not technically correct with different periods.
Meaning thereby for a two-month period for the same amount the exchequer owes nothing to the assessee while it charges 18% for the same. Effectively for a period of one year the refund rate comes out to be 5% appx. with 60 days exclusion period.
4. Interest is compensation, not a second penalty:
That distinction matters, in “Pratibha Processors v. Union of India”, the Supreme Court held that interest is compensatory in character — it compensates the exchequer for the time value of money withheld. Penalty is different, and GST already has plenty of it: Sections 73 and 74/74A impose their own penalties, Section 122 adds more, and late fee under Section 47 runs separately. If interest is truly compensation, it must bear some rational relationship to what money actually earns. At 18% against a 5.25% repo rate, Section 50 interest has stopped compensating and started punishing.
There is no internal consistency either: delayed income tax costs 12% under Sections 234A/B/C, delayed customs duty 15% under Section 28AA, delayed GST 18%. All three amounts reach the same Consolidated Fund of India. Why does the same rupee, delayed by the same taxpayer, cost three different prices?
5. A workable proposal:
My argument is not for leniency towards deliberate defaulters; deterrence has its place. My submission is only that the mechanism is broken. The fix is simple and proven across every jurisdiction in the table above: link the Section 50 rate to the repo rate, with a reasonable margin — say, repo plus 6%, notified annually. Today that yields about 11.25%.
The GST Council has shown in recent years — the net-liability amendment of 2020, the interest computation reforms of January 2026 — that it is willing to correct interest-related mistakes when the case is made. The 18% rate is long standing and it was set in an afternoon in June 2017. It should not take another decade to revisit it.
(Disclaimer: The author is a CA finalist. Views are personal. Figures for foreign jurisdictions and deposit rates are as prevailing in mid-2026 and readers should verify current rates before reliance.)
