Understanding GST Refunds

The Goods and Services makes India's indirect tax system easier to understand. Sometimes, businesses pay extra tax or become eligible for refunds due to exports or other reasons. A refund means getting back the tax already paid, in cases where it was not required. Understanding refund rules helps businesses maintain smooth cash flow and stay compliant with tax laws.

GST refunds occur when tax paid exceeds tax due. This can happen in exports, wrong payments, or special cases like supplies to SEZs. Refunds improve cash flow, reduce cost of operations, and ensure businesses are not overburdened by taxes. If the process is followed correctly, businesses can get this money back quickly. It is essential for businesses, especially exporters and MSMEs, to know how and when to claim GST refunds.

Legal Provisions Governing GST Refunds

The refund process is covered under:

• Section 54 of CGST Act, 2017 – Explains how to claim refunds of tax, interest, or other amounts.
    
• Rules 89 to 97A of CGST Rules, 2017 – These rules explain documents and steps needed.
  
  
• Section 55 – For special bodies like UN or embassies.
  
  
• Section 77 – Refund when tax is paid under the wrong category (IGST instead of CGST/SGST or vice versa).

Refunds are allowed in many situations, but some conditions apply. Exports with duty or duty drawback may not qualify. If tax burdens have been passed on, refunds should not be requested.

Eligibility for GST Refunds

Refunds are allowed in these situations:

1. LUT or IGST-exported goods.
   
   
2. Inverted Duty Structure: Higher tax on inputs, lower on outputs.
   
   
3. Excess Payment: Mistakes in tax paid.
   
   
4. Final Provisional Assessment: After final tax is less than paid earlier.
   
   
5. SEZ Supplies: To Special Economic Zones.
   
   
6. Deemed Exports: Supplies to Export Oriented Units (EOUs).
   
   
7. Diplomatic or UN Bodies: As per special notifications.
   
   
8. Discount Adjustments: Year-end discounts leading to extra tax paid.
   
   
9. Court or Appellate Orders: When demand is set aside.
   
   
10. Incorrectly paid CGST/SGST tax instead of IGST or vice versa.

Types of GST Refunds

Refund on Exports

Exports are zero-rated. Taxpayers may:

• Pay IGST and claim it back.
  
  
• Get Input Tax Credit by exporting without IGST using LUT.

Exporters must also submit relevant documents like shipping bills and BRC/FIRC to prove export.

Refund under Inverted Duty Structure

ITC rises when input tax exceeds output tax. Unused credit can be refunded to businesses. There is no ITC on services or capital products.

This is common in sectors like textiles, fertilizers, and footwear where input taxes are high and output taxes are low.

Refund of Extra Tax Paid

Sometimes tax is paid under wrong head or twice. You can ask for a refund under Section 77 (CGST) or Section 19. (IGST). Businesses must file correct returns to show proof of excess payment.

Refund on Final Assessment

If provisional assessment ends with lower liability, refund of extra amount paid is allowed. Copy of final assessment order required for refunds.

SEZ Supplies

Supplies to SEZ units/developers are zero-rated. Supplier can:

• Pay tax and claim refund.
  
  
• Not pay LUT tax, obtain ITC.

SEZ officer’s endorsement is needed on the invoice to prove that supply was for authorized operations.

Deemed Exports

These include supplies to EOUs or similar. Suppliers or recipients can request refunds. Proof of payment and declaration from the recipient must be submitted.

Diplomatic Bodies

UN and embassies can claim refund under Section 55 if GST is paid on purchases. Proper documentation and government approvals are mandatory.

Documents Required for GST Refund

Refund applications must include:

• Invoice copies.
  
  
• Shipping bill or export data.
  
  
• Bank realization (BRC/FIRC) for services.
  
  
• GSTR-1 and GSTR-3B match data.
  
  
• Statement under Rule 89(2).
  
  
• Declaration that burden of tax has not been passed on.
  
  
• CA certificate if refund > Rs. 2 lakh.
  
  
• SEZ officer endorsed SEZ supplies.
  
  
• LUT copy for tax-free zero-rated supplies.
  
  
• Declaration from recipient for considered exports.

Documents should be carefully prepared and uploaded to avoid deficiency memos.

Procedure for Claiming GST Refund

• Step 1: File RFD-01
  GST portal refund form. Choose refund reason and upload documents. Use correct category and claim period to avoid rejection.
  
  
• Step 2: RFD-02 Acknowledgment
  If the form is complete, system gives an acknowledgment within 15 days. This means the application is under process.
  
  
• Step 3: RFD-03 (Deficiency Memo)
  If form has issues, officer issues RFD-03. Taxpayer must fix errors and reapply. Resets the 60-day refund processing clock.
  
  
• Step 4: RFD-04 (Provisional Refund)
  Exporters can get 90% back in 7 days. This is allowed when there is no risk or past default. 
  
  
• Step 5: RFD-06 (Final Order)
  After full checking, officer issues refund order in RFD-06. This mentions accepted, adjusted, or rejected amount. 
  
  
• Step 6: RFD-05 (Payment Advice)
  Banks get this form to credit refunds. Refund gets credited to bank account linked to GST registration. 
  
  
• Step 7: RFD-07 or RFD-08
  Used when refund is adjusted or rejected. RFD-09 allows taxpayer to reply.

Time Limits for Filing Refund Claims

Section 54(1) requires repayment to be sought within 2 years:

• Export: Invoice or shipping bill date.
  
  
• Tax overpaid: Date of payment.
  
  
• Final assessment: Date of final order.
  
  
• Deemed export: Date of invoice.
  
  
• SEZ supply: Date of invoice or endorsement by SEZ officer.

For erroneous tax payment (Section 77), 2 years after right payment.
If refund is not claimed in time, it is barred by limitation. Timely filing is critical to avoid rejection.

RFD-06: GST Refund Order

RFD-06 is the final approval form. It shows:

• ARN and date of application.
  
  
• Total claimed and sanctioned amount.
  
  
• If any interest is due.
  
  
• Adjustments done.
  
  
• Rejected portion with reason.

It must be issued within 60 days of filing refund application. If delayed, interest @ 6% per annum is payable by department.

RFD-07: Adjustment or Withholding

This form is used when:

Part A: Adjustment

Refund is used to clear old tax dues. Taxpayer is informed via this form. It includes details of previous demand and offset amount.

Part B: Withholding

Refund is held back temporarily if:

• Taxpayer is under audit.
  
  
• Officer suspects fraud.
  
  
• Appeals or cases are pending.
  
  
• Business is non-compliant or under scrutiny.

Officer mentions reason code and gives hearing chance before final decision. Once cleared, refund is released with interest if delayed.

Frequently Asked Questions (FAQs)

1. Who can claim a GST refund?
   Any registered taxpayer can claim a refund if they have paid excess tax or made eligible supplies like exports or SEZ transactions.
   
   
2. What is the time limit for filing a GST refund application?
   Refund must be claimed within 2 years from the relevant date as per Section 54 of the CGST Act.
   
   
3. Can I get a refund for IGST paid on exports?
   Yes, if exports are made with payment of IGST, you can claim a refund of the tax paid. 
   
   
4. Is refund allowed under inverted duty structure?
   Yes, refund of accumulated input tax credit is allowed if input tax rate is higher than output tax rate. 
   
   
5. How long does it take to get the GST refund?
   Generally, refund should be issued within 60 days. For exports, provisional refund of 90% is issued in 7 days.
   
   
6. What happens if my refund application is rejected?
   If rejected, you will receive Form RFD-08 with reasons. You can respond using Form RFD-09.
   
   
7. Can I adjust refund against my GST liability?
   Yes, the department can adjust your refund against any outstanding dues using Form RFD-07 Part A.