GST is a value-added tax levied on the supply of goods and services in India. When the registered taxpayer pays GST on the purchases, he can claim a credit for that GST paid and offset it against the GST they collect on the sales. In some cases, the input tax credit may accumulate or exceed the output tax liability, and then it can be eligible for refundable amount. Hence, Taxpayers can claim GST refund for the excess tax payments upon the final assessment.
Timely refund is compulsory in tax administration, as it facilitates trade through release of funds for the working capital, expansion and modernization of existing business. The provisions of GST refund under the law aim to streamline and standardise the GST refund procedures. Thus, under the GST regime there is a standardised form for making such claim for GST refunds. The GST refund claim and sanction procedure are completely online and time bound, which is more helpful and saves time consuming and cumbersome.
Who claims GST refund?
There are various situations that may necessitate a refund claim. A claim for GST refund may arise on following conditions:
- Export of goods or services
- Supply of goods regarded as Deemed Exports
- Supplies to SEZs units and developers
- GST refund arising on account of judgment such as decree, order or direction of the Appellate Authority, Appellate Tribunal or any court;
- Refund of taxes on when purchases made by UN or embassies etc.
- Refund of (ITC) Input Tax Credit on account of inverted rate structure
- Refunds to International people of GST paid on goods in India and then carried abroad at the time of departure from India
- Refund of pre-deposit
- Finalisation of provisional assessment
- Tax paid in excess/by mistake
- Refund of tax paid wrongly as under Section 77 of the CGST Act and Section 19 of IGST Act, such as by treating the supply as intra-State supply, which was inter-State supply and vice versa.
Benefits of GST Return Filing
Some essential benefits of GST return filing are as follows:
GST Return Filing by a Single Form
Different types of taxes are collected under the Act, i.e. IGST, CGST & SGST. These three taxes paid or collected can only be recorded in a single form. It has helped to ease the complex process of GST Return Filing.
Higher Threshold Benefits
Before the GST Tax, VAT applied to every business having an annual turnover of Rs 5 Lakhs. But after GST, annual turnover has increased to 20 lakhs. It has provided higher threshold benefits to small-scale businesses.
Eliminates the Cascading Effect
The GST in Indian tax system has removed several other taxes, such as central excise duty, customs duty, service tax, and state-level value-added tax. Therefore, a single GST has abolished the cascading effect of tax.
Before GST, start-ups with annual turnover of 5 lakh require to pay VAT which took a lot of work for a start-up to spend this much amount at the initial stages. GST has now replaced VAT, where businesses can set off the service tax on sales.
E-commerce for Quick Supply of Goods
With the increase in market competition, every business is trying to make a strong presence online by offering various services and products. Under VAT, various types of laws and compliances were required to be followed, which needed to be clarified. GST has removed such complicated processes and made the E-commerce business easy.
Offers Higher Compliance Rating
To observe the compliance structure, the GST has introduced the mechanism of compliance rating, where all the registered entities or individuals are provided grades based on their performance of fulfilling the compliance and payment of taxes. The rating for individual or entity compliance is publicly available, and a unique taxpayer is ranked with higher compliance ratings.
Better Regulations and Accountability
Before the GST, the tax filing system was quite unorganized; all the taxes were paid with the major inconvenience. Now that part of tax filing has been eliminated, resulting in better tax regulation of the laws and enhanced the accountability of the taxpayers.
Types of GSTR
Under the Goods and Services Tax system, various types of GST returns are used to report different types of transactions and fulfil compliance requirements. Here are some of the commonly used GST returns are as follows:
GSTR-1: This type return to be filed by registered taxpayers with the details of outward supplies of goods or services. It includes information on exports, sales, and supplies made to unregistered persons.
GSTR-2A: It is an auto-generated return to be filled with details of inward supplies as reported by the suppliers in the GSTR-1. It is for the recipients to verify and reconcile their purchases.
GSTR-3B: It is a summarized monthly return which taxpayers are required to file with the summary of the outward supplies, input tax credit (ITC) availed, and the amount of tax payable. It is a self-assessed return.
GSTR-4: It is a quarterly return to be filed by composition scheme taxpayers. It requires details of the taxpayer's outward supplies, tax payable, and payment of tax.
GSTR-5: It is to be filed by non-resident taxpayers who get involved in taxable supplies in India. It requires details of their outward supplies, inward supplies, tax liability, and taxes paid.
GSTR-6: It is a return to be filed by Input Service Distributors (ISDs). ISDs are entities that receive invoices containing GST on input services and distribute the input tax credit to their branches or units.
GSTR-9: It is an annual return to be filed by regular taxpayers. It provides a consolidated summary of all the monthly or quarterly returns filed in the financial year.
GSTR-9A: It is an annual return to be filed by composition scheme taxpayers. It includes the summary of all the quarterly returns filed during the financial year.
GSTR-9C is a reconciliation statement and certification form filed by taxpayers whose annual turnover exceeds a specified threshold. It requires the taxpayer to reconcile the figures reported in GSTR-9 with audited financial statements.
GSTR-10: It is to be filed by taxpayers whose GST registration has been surrendered or got cancelled.
GSTR-11: It is the return to be filed by taxpayers who have been allotted with an Unique Identity Number (UIN) to claim a GST refund.
Eligibility criteria for GST Refund filing
There is few eligibility criteria mentioned below for GST refund filing:
Export of Goods or Services
When the services or goods are exported from India, then one becomes eligible for a GST refund on the inputs used in the production or supply of those goods or services. The export must comply with the provisions of the Integrated Goods and Services Tax (IGST) Act, 2017.
Supplies that are categorized as zero-rated such as supplies to Special Economic Zones (SEZs), or supplies made to a SEZ developer or unit, are eligible for GST refund. The refund claim will be filed for the GST paid on inputs or the accumulated input tax credit.
Inverted Duty Structure
In case where the GST tax rate on inputs is higher than the tax rate on the final product, which results in an accumulation of input tax credit, then one can claim GST refund. It is typically applicable to sectors such as textiles etc
Accumulation of Input Tax Credit
If accumulated input tax credit is high due to the output tax liability being less than the input tax credit, one can become eligible for a GST refund. It happens when the GST rate on inputs is higher than the GST rate on the outputs.
Refund on Provisional Assessment
If the excess tax payments are due to final assessment or provisional assessment, then one can be eligible for a GST refund of the excess amount paid.
Documents required for GST refund Filing
While filing for the GST refund, there is a requirement to provide supporting documents to substantiate the claim. Here is a list of common documents that are generally required for GST refund filing in India:
Copy of GST Registration Certificate: A copy of the GST registration certificate of the taxpayer claiming the GST refund.
Invoices: Copies of invoices issued for the supply of goods or services on which GST has been paid. These invoices must have the GSTIN of the supplier and recipient, date, invoice number, description of goods or services, taxable value, and GST charged.
Export-related Documents: In case GST refund claim is related to exports, the following documents are required:
- Shipping Bills: Copies of shipping bill of export which have details of the exported goods, port of shipment, consignee, and other relevant information
- Export Declaration Forms: Documents such as Export Declaration Forms (EDF) or ARE-1 forms that contain details of the goods exported, value, quantity, and other relevant information.
Bank Statements: Bank statements showing the receipt of export proceeds or foreign exchange is required to validate export-related refund claims.
Input Tax Credit (ITC) Documents: In case GST refund claim is related to the accumulation of input tax credit, the following documents are must:
- Purchase Invoices: Copies of purchase invoices or debit notes that substantiate the GST claim for input tax credit.
- Credit Notes: Copies of credit notes issued by the supplier, if applicable.
Bond/Letter of Undertaking: In the case of export-related GST refunds, a copy of the Bond or Letter of Undertaking submitted to the authorities.
Proof of Payment: Documents required for proving the payment of GST, such as challans or bank payment receipts.
Refund Application Form: The completed refund application form filled out accurately and signed.
Process for filing of GST refund
You need to follow a specific procedure to file a Goods and Services Tax (GST) refund claim in India. Here is a general outline of the steps involved:
Step 1: Log in to the GST portal and go to the ‘Services’ tab, click on ‘Refunds’ and select the ‘Application of refund’ option.
Step 2: In the page that appears, select the reason for refund or the type of refund and click on ‘Create refund application’.
Step 3: Select the period for which a refund is to be applied and select ‘Yes’ or ‘No’ on the dialogue box- ‘If you want to file a nil refund’.
In case of nil refund application, the taxpayer can checkmark the declaration and proceed to file using either DSC or EVC.
Step 4: Enter the details on the relevant page that gets displayed, based on the type of refund selected in the previous step.
Type 1: Excess cash balance in electronic cash ledger
Enter the amount of cash to be claimed as a refund.
Type 2: Excess tax paid through GSTR-3B
Enter details of the GSTR-3B in which such tax payment was done in cash.
Type 3: Accumulated ITC due to exports of goods and services without payment of tax
Download Statement 3 and enter the details of export invoice documents on which refund is claimed.
Generate the JSON file and upload it on the GST portal. Validate errors, if any.
Type 4: Accumulated ITC due to supplies made to SEZ unit/SEZ developer (without payment of tax)
There is a prerequisite that GSTR-1 and GSTR-3B of the selected period must be filed. The steps remain the same as the ones laid down for the Type 3 refund given above. However, the statement will be Statement 5. A CSV file can be uploaded instead of JSON.
Type 5: ITC accumulated due to inverted tax structure
Inverted tax structure means the tax rate and amount paid on inputs are higher than the outputs. The steps remain the same as the ones laid down for the Type 3 refund given above. However, the statement will be Statement 1A. Thereafter, enter details such as turnover of inverted rated supply, tax payable, and adjusted total turnover and net input tax credit.
Type 6: Refund by the recipient of deemed exports
The steps remain the same as the ones laid down for the Type 3 refund given above. However, the statement will be Statement 5B. Thereafter, enter details such as net input tax credit of deemed exports and the refund to be claimed.
Type 7: Tax paid on supplies made to SEZ unit/SEZ developer (with payment of tax)
The steps remain the same as the ones laid down for the Type 3 refund given above. However, the statement will be Statement 4. The refund amount will get auto-populated based on the statement uploaded.
Type 8: Tax paid on an intrastate supply later held as interstate supply and vice versa
The steps remain the same as the ones laid down for the Type 3 refund given above. However, the statement will be Statement 6. The refund amount will get auto-populated based on the statement uploaded.
Type 9: Refund by the supplier of deemed exports
The steps remain the same as the ones laid down for the Type 3 refund given above. However, the statement will be Statement 5B. The refund amount will get auto-populated based on the statement uploaded.
Type 10: Refund of IGST paid on export of services (with tax payment)
The steps remain the same as the ones laid down for the Type 3 refund given above. However, the statement will be Statement 2. The refund amount will get auto-populated based on the statement uploaded.
Type 11: On account of assessment or provisional assessment or appeal or any other order
Make the selection of the type of order and enter details of the same, as per the screenshot given below.
Type 12: Refund on any other ground’
Reasons could be excess interest paid via GSTR-3B. Mention the reason for refund specifically in 200 characters along with the amount.
Step 5: Enter bank account details for the refund, upload the supporting documents and declaration, in refund types that mandate it.
Up to 10 supporting documents can be uploaded, with file size limited to 5 MB each.
Preview the application and click on ‘Save’. The saved application remains for 15 days for the taxpayer’s action. Click on the ‘Proceed’ button after checking the boxes against undertaking and self-declaration.
Step 6: File RFD-01 using EVC or DSC.
Application reference number or ARN gets generated and displayed on the screen. Taxpayers can track using this number. The ARN is also sent to the email address and mobile number.
The refund application is thereafter assigned to the refund processing officer. It will be processed, and the refund status gets updated.
Withdrawal of GST Refund
The withdrawal of an application for a GST refund can be made even after the issuance of acknowledgement. In that case, no issuance of final refund sanction order or rejection of repayment can be given by the proper officer. When an application for withdrawal of the GST refund claim is submitted, the amount will be debited from the applicant’s account, which was credited to the applicant's account while filing the GST refund claim.
Disbursal of GST Refund Amount after Sanction
According to the Section 56 of the CGST Act, 2017 the tax that has to be refunded if not credited within the time duration of 60 days from the date an application is received, then interest will levy at the rate of 6% on the refund amount. Therefore, interest levied will be applicable starting from the expiry of 60 days from the date an application is received (ARN) till the date on which an amount is credited to an applicant's bank account.
Accordingly, all tax authorities are advised to issue the final sanction order in the FORM GST RFD-06 within the time period of 45 days of the date of generation of (ARN). It is important to note that any tax will be considered to refund only when the amount has been credited to an applicant's bank account.
Payment of the Wrong Tax
A taxable person may pay an integrated tax instead of a central tax or can pay state tax or vice versa because of incorrect application or by mistake. In such cases, an interest will not be charged while making an appropriate tax payment and therefore refund claim for the wrong tax paid is provided. As per Section 77 of the CGST Act, 2017 and Section 19 of the IGST Act, 2017, one can claim a GST refund for a wrong or extra tax paid.
Power with Commissioner to Withhold GST Refund
According to GST law, where an order for GST refund is the subject to an appeal or further proceedings or any other proceedings under GST Act are pending, then Commissioner can withhold such GST refund. It happens when the Commissioner believes that granting such a refund will adversely affect the revenue in the appeal or other proceedings. The taxable person had an opportunity of being heard before withhold of GST refund. The Commissioner can withhold the refund in the Part A of Form GST RFD-07 till he may think fit. Further, once the reasons for withholding refunds cease to exist, such withheld refunds can be released by passing an order in the Part-B of Form GST RFD-07.
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