When is (it) a good time to call you?

Question

1. When is it a good time to call you?
2. When is a good time to call you?

Everybody tells me that both are correct. What is the exact grammatical difference?

Answer 1

(1) When is it a good time to call you?
(2) When is ∅ a good time to call you?

Indeed, both are correct, but they are not the same structure. Think of the question as being an equation saying that a description of a point in time (a good time to call you) equals (is) some specific but unknown time (When), which is what's being queried by the question.

This can occur in two orders, since it's an equation and they're commutative; the is in the middle is the fulcrum, and the two parts can appear either as
- A good time to call you is When
or as
- When is a good time to call you
You see from this last example where one of the structures comes from, and why it's OK.

As for the other structure, the it is not a referential pronoun, but a Dummy it.
In particular, it's the dummy it of Extraposition.

This comes from the first example, where the embedded question clause is the subject.
Extraposition is a rule that takes "heavy" (long clause or phrase) subject noun phrases and moves them to the end of the clause, where they are more easily parsed, leaving a dummy, or changeling, it behind, to fool us into thinking the sentence still has a subject before the verb.

• [For him to leave early] was a bad idea ==> (Extraposition)

• It was a bad idea [for him to leave early].

• [When he left] was 7:30 pm ==> (Extraposition)

• It was 7:30 pm [when he left].

• [That he has no heirs] is fortunate ==> (Extraposition)

• It is fortunate [that he has no heirs].

So the one with it comes from an extraposed clause, and the when gets moved to the front as it ought to, that still leaves the it there. So it got in through the back door, but no meaning was changed, so it can stay. There's an awful lot of things like this in English, and in any other language.

There is never only one correct way to say something; more likely, there are several million.

Answer 2

Recast them as declarative sentences:

It is a good time to call you [at four o'clock].

[Four o'clock] is a good time to call you.

In the first version, the question word corresponds to a temporal adjunct, while in the second the question word corresponds to the subject.