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Claiming Goods and Services Tax (GST) refunds can be confusing, but it’s an essential process for many businesses in India to maintain healthy cash flows. According to data, over ₹1.5 lakh crore in GST refunds remain unpaid. If you deal with exports, inverted duty structures, or have any unutilized input tax credit (ITC), you may be owed a GST refund.
This comprehensive guide will teach you everything you need to efficiently claim your entitled GST refund. You’ll learn who qualifies for refunds, the different types of refunds, documents required, mistakes to avoid, and more. Arm yourself with the knowledge needed to claim what’s rightfully yours.
Who is Eligible for a GST Refund?
You are eligible for a GST refund if you:
- Export goods or services outside India
- Purchase goods or services taxed at a higher rate than goods or services you provide (inverted duty structure)
- Have unutilised input tax credit at the end of a tax period
- Are an embassy or UN body entitled to refunds under special provisions
- For exports and inverted duty structures, you can claim a refund on excess GST paid. Those carrying forward an unutilised ITC balance can also recover the credit in cash.
Types of GST Refunds
There are three main types of GST refunds:
Refunds for Exports
Exporters can recover GST levied on raw materials and other inputs for exported goods and services. To promote Indian exports globally, exporters receive up to 90% of taxes back as refunds.
Refund Due to Inverted Duty Structure
GST paid on inputs can be higher than the GST applicable on a good or service. This inversion allows businesses to claim refunds of excess GST paid. Common in textile manufacturing where inputs are taxed at 18% but output at 12%.
Refund of Unutilised ITC
If your input tax credit for a tax period remains unutilized, you can claim an ITC refund up to the minimum refund amount or 10% of total ITC, whichever is higher. This refund clears out your ITC balance sheet.
Now let’s dive into the separate procedures for an unutilized ITC vs. export refund.
Claiming an Unutilized ITC Refund
When input tax paid exceeds your GST tax liability for that period, you generate an unutilised ITC balance eligible for refunds. Follow this process:
Step 1: File Your Monthly GSTR-3B
You must file monthly GST returns before applying for a refund. This fixing your ITC claims, taxes paid, and liabilities for that tax period.
Step 2: File a GST RFD-01 Application
Access the GST portal and select Services > Refund > Application for Refund to start your refund application with form GST RFD 01.
Step 3: Fill in Your Refund Details
Enter your taxpayer details, ITC balance, bank details, reason for refund, and verification information correctly to ensure smooth processing.
Step 4: Submit Supporting Documents
Attach all supporting documents listed in the next section, including statement of invoices and customs clearances.
Step 5: Receive Provisional Refund Order
A tax officer will verify your GST RFD-01 application and issue an RFD-04 provisional refund order if approved. 90% of the sanctioned refund amount releases.
Step 6: Submit Proof of Refund Received
After receiving the provisional refund, file an RFD-05 to submit proof of refund received. This helps finalize the remaining 10%.
Step 7: Get Remaining Refund Amount
After satisfactory proof, the tax officer closes the refund case and issues the remaining 10% refund amount. Account is settled.
Claiming an Export Refund
Exporters enjoy various GST refund benefits to boost India’s exports globally. Follow this process:
Step 1: Ensure Export Eligibility
Only exports qualify for refunds. Maintain valid documents like customs/foreign inward remittance proof, bank realisation certificates etc.
Step 2: File Shipping Bill Details
Provide shipping bill details and integrated GST paid in GSTR-1 for relevant tax period. This links GST paid on inputs with exports.
Step 3: File Bond/LUT
Submit a Letter of Undertaking (LUT) or bond to export without paying integrated GST. This LUT commits to pay IGST if export proof isn’t provided later.
Step 4: File GST RFD-01
Claim refund by filing details of exports, ITC claimed, bank account details etc. in form GST RFD-01 under the export with payment of tax option.
Step 5: Submit Supporting Documents
Attach documents like exports invoices, bank realisation slips, foreign inward remittance proofs, transport proofs etc. to establish genuinity.
Step 6: Receive Provisional Refund
Tax officer scrutinizes the application and issues RFD-04 for 90% of eligible refund on a provisional basis.
Step 7: Submit Proof of Refund Received
File an RFD-05 to submit proof of receiving the provisional refund. Helps tax authorities reconcile accounts.
Step 8: Get Remaining 10% Refund
On satisfactory reconciliation, the officer disposes case and refund balance 10% to close account.
Important Steps to Receive Your Refund
Follow these steps for smooth GST refund processing:
- File accurate, consistent GST returns ensuring ITC claims match liabilities.
- Ensure bank account active to avoid refund rejection.
- Match invoices uploaded with actual tax paid to avoid queries.
- For exports, submit export proof quickly to expedite refund.
- If refund application rejected, timely resolve issues and reapply correctly.
- Track refund application status online and check for processing issues.
- For large refunds, break into smaller amounts in multiple applications.
Documents Required for Refund Claim
Include these documents to verify your GST refund claim and avoid deficiencies:
- GST Registration Certificate
- Tax Invoices
- Tax Payments Receipts
- Export/ITC Details
- GST Return Copies (GSTR-1/GSTR3B)
- Bank Statement
- Export Documents (Shipping Bill, Foreign Inward Remittance Proof etc.)
Timeline for Receiving Approved Refunds
Expect the following refund processing timeline:
ITC Refunds: 60 days from application to disburse full refund
Export Refunds Without Payment of Tax: 60 days from receipt of full documentation
Export Refunds With Payment of Tax: 90 days from receipt of full documentation
The tax officer can also initiate further investigation/verification which can delay refunds.
Common Mistakes to Avoid
Steer clear of these errors that can lead to refund rejection:
- Incorrect Bank Account Details
- Mismatch in Tax Details of Purchases/Sales
- Failure to Respond to Deficiency Memos
- No Supporting Export Documents
- GST Return Filing Default
- Past Demand or Recovery Issue
Take time to enter accurate details, cross-verify ITC claims, and proactively respond to queries through the proper channel. This prevents refund rejection or delays.
FAQs on GST Refund
Confused about certain aspects of GST refunds? Here are answers to some frequently asked questions:
Q: Can I claim refund and ITC carry forward together?
A: No, you must choose one option in your GST refund application.
Q: Is interest paid if refund gets delayed?
A: Yes, interest is paid if refund not granted within 60 days of receipt of documentation.
Q: Is export refund amount subject to income tax?
A: No, GST refund of taxes paid related to exports is tax exempt income.
Q: Can I claim refund on exclusively zero-rated supplies?
A: Yes, those dealing only in exports/SEZ supplies still claim refund of taxes paid on inputs.
Q: What if refund claim gets rejected?
A: Analyze the reasons, rectify issues and reapply for refund with correct documents within 2 years.
Conclusion & Next Steps
Claiming GST refunds allow businesses to boost working capital liquidity significantly while staying tax compliant. With this definitive guide, you should clearly understand the GST refund eligibility criteria, process to file, documents required and common pitfalls.
The next step is to determine your export/ITC status, assemble all documents outlined above, take professional assistance if needed, and apply for refund through form GST RFD 01. Be sure to capture all details accurately in both returns and refund application and respond promptly to any discrepancies.
With some time and diligence to follow the proper procedures, you can ensure successful GST refund disbursal without delays or rejection. The boost to cash flows make the effort well worth it.
If you need any assistance with registering for GST, filing returns, understanding compliance requirements or claiming refunds, the dedicated experts at filingwala.com can help. Filingwala.com is an accounting services company that specializes in providing small businesses and startups with accurate and affordable services for taxes, registrations, bookkeeping, payroll and more.
Their tax professionals have filed thousands of successful GST registrations and refund claims worth crores of rupees in savings for clients across India. By customizing their services for your unique business needs at a fraction of high CPA fees, filingwala’s experts guarantee 100% accuracy of your compliance at affordable rates.
To determine your eligibility and get started with claiming GST refunds stress-free, book a consultation with filingwala.com today. Their reliable accounting services ensure your business remains compliant, cashes in on every tax benefit and bonus refund owed, and avoids any penalties or interest.