How to claim tax refund under GST

Tally Solutions |Updated on: December 17, 2021

A Tax refund refers to any amount that is due or returnable to the tax payer from the tax department. There are specific scenarios in which refund is allowed and dealers can claim tax refund only in these scenarios, such as excess payment of taxes, unutilized input tax credit on account of output supplies being exports, rate of tax on inputs being higher than the rate of tax on outputs (Inverted duty structure), etc.

Let us first briefly see the scenarios in which tax refund is allowed in the current regime.

Current Regime

In the current tax regime, refund is allowed in the following cases:

Excise

Refund is allowed in cases of:

Tax paid on purchasing goods which have been exported or on inputs used to manufacture goods exported
Input tax credit has accumulated due to output supplies being only exports or zero rated supplies

VAT

Refund is allowed in cases of:

VAT paid to purchase goods which have been exported
Excess input tax credit- In most states, if the input tax credit exceeds the tax payable on sales in a month, the excess credit will be carried over till the end of the financial year. At the end of the financial year, the dealer has an option to claim the amount as refund or carry forward the input tax credit

Service Tax

Refund is allowed in cases of:

Excess Service Tax paid, where the excess payment cannot be adjusted against a future tax liability
When there is accumulated input tax credit used in providing an output service which has been exported without paying Service Tax

Let us now understand tax refund under GST.

GST regime

In the GST regime, the scenarios where tax refund is allowed are similar to the current regime. Following are the most common scenarios where refund is allowed under GST:

Tax paid on inward supply of goods and/or services which have been exported or on inputs or input services used in goods and/or services exported. Note that if the goods are subjected to export duty, refund will not be allowed.
Unutilized input tax credit due to output supplies being exports or zero rated supplies
Unutilized input tax credit due to inverted duty structure. This is when the rate of tax on inputs is higher than the rate of tax on output supplies. In the current tax regime, this is not allowed for refund. However, in the GST regime, this scenario is eligible for claim of tax refund. Note that in this case, refund is not applicable when supplies are NIL rated or fully exempt.

Process for claiming GST refund

1. Application for Refund

A person claiming refund of tax or interest or any other amount paid must file an application for refund in Form GST RFD-1 before the expiry of 2 years from the ‘relevant date’.
The ‘relevant date’ in each scenario of refund is given below:

Scenario	Relevant Date
Goods exported by sea or air	Date on which the ship or aircraft in which the goods are loaded, leaves India
Goods exported by land	Date on which the goods pass the frontier
Goods exported by post	Date of dispatch of goods by the concerned post office
Services exported, where the supply of service has been completed prior to the receipt of payment	Date of receipt of payment
Services exported, where the payment has been received in advance, prior to the date of issue of invoice	Date of issue of invoice
Unutilized input tax credit	End of the financial year in which the claim for tax refund arises

Note: A claim for refund of the balance in the electronic cash ledger must be made through the relevant monthly return, i.e., Form GSTR-3 in case of a regular dealer, and Form GSTR-4 in case of a composition dealer.

Documents required for claiming refund under GST

If the amount claimed as tax refund is less than Rs. 5 Lakhs - The person needs to file a declaration, based on the documents or other evidence available with him, certifying that the incidence of tax or interest being claimed as refund has not been passed on to another person.

If the amount claimed as refund is more than Rs. 5 Lakhs - The application for refund must be accompanied by:

Documentary evidence to establish that the refund is due to the person.
Documentary or other evidence to establish that the amount was paid by him/her, and that the incidence of the tax or interest has not been passed on to another person.

2. Order for refund

Refund on account of export
If the refund is on account of export of goods and/or services, the authorised officer will refund 90% of the total amount claimed as refund on a provisional basis in Form GST RFD-4. Thereafter, after due verification of the documents furnished, the officer will issue an order for final settlement of the refund claim.
Provisional refund will be granted subject to the following conditions:

The person claiming refund has not been prosecuted for tax evasion of an amount exceeding Rs. 250 Lakhs during the preceding 5 years.
The person’s GST compliance rating is not less than 5 on a scale of 10.
No pending appeal, review or revision exists on the amount of refund.

Refund in any other case
If the officer is satisfied that the whole or part of the amount claimed as refund in the application is refundable, he will issue an order for the refund in Form GST RFD-5. This will be done within 60 days from the date of receipt of application. If the refund is not sanctioned within 60 days, interest on the refund amount will be paid for the period after expiry of 60 days till the date of actual refund of tax.

Note: No refund shall be made if the amount claimed as refund is less than Rs. 1,000.

Exceptional scenarios of GST refund

Following are few exceptional scenarios in which refund is allowed under GST:

Tax on supply of goods regarded as deemed exports. For example: Supply of goods or services to an SEZ (Special Economic Zone) or EOU (Export Oriented Unit).
Tax is refundable as a consequence of a judgement, decree, order or on the direction of an Appellate Authority, Appellate Tribunal or any court.
Tax has been paid on a supply which has not been provided, either wholly or partially, and for which an invoice has not been issued. For example, A supplier has received an advance from the recipient on 28^th November ’17 for a supply to be made on 20^th December ’17, but which finally did not take place owing to a disagreement. While filing the return for November ’17, the supplier has to pay tax on the advance received. This tax is eligible for a refund.
Tax wrongly collected and deposited with the Central or State Government- If a person has paid CGST and SGST on an interstate supply or IGST on an intrastate supply, the person is eligible for refund of the amount once the tax has been remitted correctly.
IGST paid on supply of goods to tourists travelling out of India, if the goods are taken out of India.

The ‘relevant date’ in these scenarios of refund is given below:

Scenario	Relevant Date
Goods regarded as deemed exports	Date on which the return relating to the deemed exports is filed
Tax refundable as a consequence of a judgement, decree, order or on the direction of an Appellate Authority, Appellate Tribunal or any court	Date of communication of the judgement, decree, order or direction
Tax provisionally paid	Date of adjustment of tax after the final assessment
In the case of a person, other than the supplier	Date of receipt of goods or services by the person
Any other case	Date of payment of tax

The process for claiming refund in these exceptional scenarios remains the same as discussed in the process for claiming refund section above.

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