GST Refund: Rules, Provisions & Claim Process

What is GST refund?

The GST refund process allows registered taxpayers to claim a refund for any excess amount paid over their GST liability. Taxpayers can initiate the claim by submitting a refund application with the required details on the GST portal.

Delays in processing refunds can negatively impact the cash flow and working capital of manufacturers and exporters. To address this, the GST system aims to ensure a smoother refund process, minimizing disruptions caused by delays. Faster refunds not only benefit businesses but also enhance the efficiency of tax administration.

The GST framework includes specific provisions to streamline and standardize the refund process. A standardized form has been introduced for refund claims, and the entire procedure can be completed online within a stipulated timeline.

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Scenarios when GST refund is applicable

Under Section 54 of the GST law, the term ‘refund’ in the context of GST would include the following instances –

• Refund of output tax which has been paid on zero-rated supply of goods and/or services
• Refund of input tax on inputs or on input services that have been used to make zero-rated supplies
• Refund of tax levied on goods hat are categorized as deemed exports
• Refund of the unutilized input tax credit as specified under Section 54(3) of the GST Act due to an inverted duty structure.

Besides these types of refunds, which have been specified under Section 54 of the GST Act, there can also be other types of refunds like the following –

• Refund of tax on export of goods and services
• Excess payment of GST due to an error or inadvertence
• Refund on finalization of provisional assessment
• Refund of the tax paid by bodies of the United Nations, para-military forces, army canteens, etc.
• Refund of tax on pre-deposit if there is an appeal
• Refund for the additional balance in the Electronic Cash Register
• Refund of tax levied on supplies made to SEZs
• Other miscellaneous refunds

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When to claim GST refunds?

Now you know the instances when you can claim a GST refund but do you know when should the refund be claimed?

The application for claiming a GST refund should be made within 2 years of the relevant date. The concept of ‘relevant date’ differs across the different instances of GST refunds. Here are the relevant dates for common instances of GST refunds –

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Who can claim a GST Refund?

GST refund would be payable to an applicant only when the amount is relevant to the following –

• The amount is the refund of tax and interest thereon or any other amount which is paid by the applicant. Moreover, refund would be payable when the individual has not passed on the tax and interest thereon or any other amount to any other individual
• The amount is the tax or interest borne by specific individuals whose name has been notified by the State Government or the Central Government based on the recommendations made by the GST Council.

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What is Section 54 of the GST?

Section 54 of the CGST Act, 2017, allows individuals or entities who have paid taxes, interest, or other amounts under GST to claim refunds. Refunds can be claimed for specific cases, including exports of goods or services, zero-rated supplies, deemed exports, and unutilized input tax credits (ITC). Refunds of unutilized ITC provide relief to taxpayers who have paid higher taxes on inputs than on their output supplies.

To claim refunds under Section 54, taxpayers must meet certain conditions and follow specific restrictions. These include submitting documentary evidence, adhering to the prescribed time limits, and complying with procedures for verification and approval of refunds.

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Clauses Under Section 54 of the GST Law

Here is a clause-by-clause explanation of section 54 of the GST law -

Section 54(1)

A registered taxpayer can claim a refund of tax, interest, or any other amount within two years from the relevant date by filing Form GST RFD-01.

Relevant dates for GST refund claims:

• Export of goods or services: Date of dispatch, loading, or crossing the customs frontier.
• Deemed exports: Date of filing the return related to such deemed exports.
• Export of services (before payment): Date of receipt of convertible foreign exchange or Indian Rupees, as permitted by the RBI.
• Accumulated ITC (nil-rated or tax-exempt output): Date of filing the return for the period when the claim arose.
• Provisional assessment finalization: Date when the tax is adjusted post-final assessment.
• Non-supplier refund claim: Date of receipt of goods or services by the claimant.
• Order in favor of the taxpayer: Date of communication of the judgment or order.
• Other cases: Date of tax payment.

Refunds for balances in the electronic cash ledger can be claimed under Section 49(6) following the prescribed process.

Section 54(2)

United Nations agencies, multilateral institutions, foreign consulates, and other notified entities can claim refunds on taxes paid for inward supplies. Refund claims must be filed within two years from the last day of the quarter in which the supply was received.

Section 54(3)

Refunds of unutilized Input Tax Credit (ITC) are allowed in two cases:

• Zero-rated supplies made without payment of GST.
• ITC accumulation due to inverted duty structure (higher input tax than output tax).

Refunds are not permitted for:

• Exported goods subject to export duty.
• Supplies where the supplier avails drawback or IGST refunds.

Section 54(4)

Applicants must provide supporting documents to prove refund eligibility and ensure the tax or interest incidence has not been passed on to others. For claims below ₹2 lakh, a declaration is sufficient, provided other evidence supports the claim.

Section 54(5)

If a refund is due, the proper officer will issue an order to credit the amount to the Consumer Welfare Fund (as per Section 57).

Section 54(6)

For zero-rated supplies, the proper officer may issue a provisional refund of 90% of the claim, subject to conditions. The final settlement is processed after verifying the required documents.

Section 54(7)

Refund orders must be issued within 60 days of receiving a complete application.

Section 54(8)

Refunds can be paid directly to the applicant in specific cases, including:

• Tax paid on exports or inputs for exports.
• Unutilized ITC refunds (as per Section 54(3)).
• Tax paid for supplies not made or invoiced (supported by refund vouchers).
• Tax incorrectly paid (as per Section 77).
• Tax or interest borne by the applicant or specified others.

Section 54(8A)

The government may disburse refunds of state tax as prescribed.

Section 54(9)

Refund applications must follow the provisions of Section 54(8), irrespective of conflicting judicial decisions.

Section 54(10)

Refunds can be withheld if:

• The taxpayer has not filed returns or paid outstanding tax, interest, or penalties.
• Outstanding dues can be adjusted against the refund amount.

The specified date refers to the last date for filing an appeal under the Act.

Section 54(11)

If there is an ongoing appeal or proceeding, and the commissioner suspects revenue loss due to fraud or malfeasance, they can withhold the refund after allowing the taxpayer an opportunity to be heard.

Section 54(12)

If a refund is withheld under Section 54(11) but later approved, the taxpayer is entitled to interest at a rate not exceeding 6%.

Section 54(13)

Casual or non-resident taxable persons cannot claim refunds of advance tax unless all returns under Section 39 for the registration period are filed.

Section 54(14)

Refunds under Sections 54(5) and 54(6) will not be issued if the claim amount is less than ₹1,000.

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How to Claim a Refund Under GST?

• Step 1. Visit the GST portal and fill out the refund application form GST-RFD 01.
• Step 2. An email or SMS containing an acknowledgment number once the application for refund has been filed online successfully.
• Step 3. The cash and return ledger will be adjusted, and the "carry-forward input tax credit" will automatically reduce.
• Step 4. Authorities will review the application and supporting documents within 30 days of submission.
• Step 5. The concept of "unjust enrichment" will be thoroughly examined during the scrutiny process.
• Step 6. If the application does not meet the required criteria, the refund amount will be transferred to the Consumer Welfare Fund (CWF).
• Step 7. For refunds exceeding the predetermined limit, a pre-audit process will be conducted before approval.
• Step 8. Refunds will be credited electronically to the applicant's account via NEFT, RTGS, or ECS.
• Step 9. Refund applications can be filed at the end of each quarter.
• Step 10. Refunds below Rs. 1,000 will not be processed.

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