Refund Mechanism under GST


Refunds under various tax laws have always been a question of concern due to the complex and cumbersome procedures that the refund seeker has to met in order to extract his well deserved amount back. For the smooth flow of business and success of the economy the procedures to obtain any extra taxes paid to the government should be user friendly, quick and short. Let us understand the refund mechanism under GST in this article.

With the blocked funds the business unit comes to a stagnant condition and the trade is altogether affected for liquidity crunch which accumulates with every passing tax period.

The government has expressed its intention to streamline and standardize the refund procedures in the GST law. Thus the mechanism of online application of refund and approval thereof has been prescribed in the law to put an end from the existing lengthy and cumbersome procedures.

Let us understand the:-

  • Constituents of refund;
  • Situations when a refund is attracted;
  • Value of Refund;
  • Refund provisions for certain taxable persons;
  • Procedure & Timeline for obtaining refund;
  • Refund Forms; and
  • Frequently Asked Questions (FAQ)



Refund constituents



Refund Rules is an indicator of the various situations that may necessitate a Refund claim. A claim for Refund may arise on account of:

  • Export of goods or services.
  • Supplies to SEZs units and developers.
  • Deemed exports.
  • Refund of taxes on purchase made by UN or embassies etc.
  • Refund arising on account of judgement, decree, order or direction of the Appellate Authority, Appellate Tribunal or any court.
  • Refund of accumulated Input Tax Credit on account of inverted duty structure.
  • Finalization of provisional assessment.
  • Refund of pre-deposit.
  • Excess payment due to mistake
  • Credit accumulation due to output being tax exempt or nil-rated.
  • Refunds to International tourists of GST paid on goods in India and carried abroad at the time of their departure from India.
  • Refund on account of issuance of Refund vouchers for taxes paid on advances against which, goods or services have not been supplied.
  • Refund of CGST & SGST paid by treating the supply as intrastate supply which is subsequently held as inter-State supply and vice versa.

Thus, practically every situation is covered. The GST law requires that every claim for Refund is to be filed within 2 years from the relevant date.

However one may question regarding the reduction of tax liability later on that may be due to the credit note issued in the next month. Let us understand this case:

If M/s ABC Ltd supplied goods to M/s XYZ Ltd for a value of INR 100000/- on 10th October 2017 then GST @ 18% (supposedly) to be deposited with the government shall amount to INR 18000/- to be deposited by 20th of November.

Where M/s ABC has issued a credit note for INR 10000/- plus taxes during November 2017 say on 26th Nov. The tax burden shall stand reduced to INR 16200/-. Now since INR 18000/- was already paid, how do M/s ABC shall get the refund of excess INR 1800/- deposited with the government?

For this the government has insisted the taxpayer to reduce its tax liability for the month of such credit note. In this case November liability shall reduced by INR 1800/- at the time of settling the output liability for the month of November.

Such refund is not governed under the general refund provisions contained in section 54 of the CGST Act 2017.



  1. Zero Rated Supply: Zero rated supplies shall mean:-
  • Export of goods or services or both; or
  • Supply of goods or services or both to a Special Economic Zone developer or a Special Economic Zone unit.

In case of zero-rated supply of goods or services or both without payment of tax under bond or letter of undertaking in accordance with the provisions of sub-section (3) of section 16 of the Integrated Goods and Services Tax Act, Refund of input tax credit shall be granted as per the following formula:

Refund Amt. = (Turnover of zero-rated supply of Goods and Services) x Net ITC ÷ Adjusted Total Turnover*

*Adjusted Total Turnover shall mean the turnover in a state or union territory, as defined under Section 2(112), excluding the value of exempt supplies other than zero-rated supplies, during the relevant period.

Provisional Refund equaling 90% of the total refund claim

In case the claim relates for Refund arising on account of zero rated supplies, the provisional refund would be paid within 7 days after giving the acknowledgement. The acknowledgement of Refund application is normally issued within a period of 14 days but in case of Refund of integrated tax paid on zero rated supplies, the acknowledgement would be issued within a period of 3 days. The provisional refund would not be granted to such supplier who was, during any period of five years immediately preceding the refund period, was prosecuted.


What happens when tax is wrongly paid under different type?

In practice, there could arise a case where the actual amount to be paid was CGST and SGST but erroneously IGST has been paid or vice versa. This type of error is possible due to wrong judgement about the place of supply. However, where such a situation arises the government has clarified that while making the actual and correct payment of tax, no interest would be charged and the tax wrongly paid shall be granted refund.



  1. Refunds to Casual/Non-Resident Taxable Persons – Casual/Non-resident taxable person has to pay tax in advance at the time of registration. Refund may become due to such persons at the end of the registration period because the tax paid in advance may be more than the actual tax liability on the supplies made by them during the period of validity of registration period. The law envisages Refund to such categories of taxable persons also. But the amount of excess advance tax shall not be Refunded unless such person has filed all the returns due during the time their registration was effective. It is only after such compliance that Refund will be granted.



  1. Refund to UN Bodies and Other Notified Agencies- Supplies made to UN bodies and embassies may be exempted from payment of GST a1s per international obligations. However, this exemption is being operational zed by way of a Refund mechanism. So, a taxable person making supplies to such bodies would charge the tax due and remit the same to government account. However, the UN bodies and other entities notified under Section 55 of the CGST Act, 2017 can claim Refund of the taxes paid by them on their purchases. The claim has to be made before the expiry of six months from the last day of the quarter in which such supply was received.


  1. Refund to International Tourist – An enabling mechanism has been introduced in Section 15 of the IGST Act, 2017 whereby an international tourist procuring goods in India, may while leaving the country seek Refund of integrated tax paid by them. The term, “tourist” has been defined and refers to any person who is not normally a resident of India and who enters India for a stay of not more than 6 months for legitimate non-immigrant purposes.


What happens when a refund is delayed?

According to the GST law and recommendations from the Subramanian committee, a refund application is to be processed within a period of 90 days. If the Refund application is not processed within said period then an interest at the rate of 6% is recommended.

Moreover on behalf of the Commerce and Industry Ministry, a minister who spoke for the concern of exporters on delay in refund, that the refunds under GST shall be processed within a period of 7 days. If same is delayed more than 2 weeks, then refund will be provided with interest.

The refund seeker is eligible for interest as per section 56 of CGST Act 2017. And where any interest is due and payable to the applicant under section 56, the proper officer shall make an order along with a payment advice in FORM GST RFD-05, specifying therein the amount of Refund which is delayed, the period of delay for which interest is payable and the amount of interest payable, and such amount of interest shall be electronically credited to any of the bank accounts of the applicant mentioned in his registration particulars and as specified in the application for Refund.


Understanding what shall be the relevant date for the purpose of refund

Relevant Date


The ministry has clarified that the refunds pertaining to July could be claimed from 10 Oct onward whereas refunds for the month of Aug could be claimed from 18 Oct onward.

  • The Refund which is claimed along with the documentary evidence has to be filed online without any physical interface and the Refund amount of the tax will be directly added to the nominated bank account of the applicant. Besides, the Refund can be claimed through return also if it is of inadvertent or excess payment.
  • If taxable person may pay integrated tax instead of central tax plus state tax and vice versa because of incorrect application of the place of supply provisions. In such cases, while making the appropriate payment of tax, interest will not be charged and the Refund claim of the wrong tax paid earlier will be entertained without subjecting it to the provision of unjust enrichment.
  • In case the claim is sought to be rejected by the Proper Officer, a notice has to be given online to the applicant stating the ground on which the Refund is sought to be rejected. The applicant needs to respond online within 15 days from the receipt of such notice. Thus no claim can be rejected without putting the applicant to notice.
  • The Refund cannot be provided if the amount of the Refund so claimed is less than 1000 rupees.

MAX REFUND AMOUNT = {(Turnover of inverted rated supply of goods) X (Net ITC / Adjusted Total Turnover) – Tax payable on such inverted rated supply of goods)}

  • The refund shall be granted within 60 days from the date of receipt of complete application. Interest is payable if a refund is not sanctioned within the stipulated period of 60 days.
  • There is no need for the claimant to furnish any documentary evidence if the amount of refund claim is less than INR 5 Lac, only a self-certification to this effect will have to be given.
  • The refund of which is claimed by the taxpayer shall be granted within 60 days from the date of receipt of complete application. If a Refund is not sanctioned within the stipulated period of 60 days, Interest is payable not exceeding the rate @ 6%.
  • 80% of the claim shall be paid immediately on a provisional basis without verification of documentary evidence in the case of Refund claim on account of exports.


Refund Forms


Q1. Is there any document to be enclosed along with Refund claim? If yes, what are the documents to be submitted?

Ans. Yes, the following documents are required to be enclosed along with the Refund application:

  • Documentary evidence to establish that a Refund is due to the applicant(prescribed under Rule 1(2) of the Refund Rules, 2017, and
  • Documentary evidence to prove that incidence of tax and interest had not been passed on to any other person.


Q2. Is there any exemption for submitting the documents required for claiming Refund?Ans. Yes, if the Refund claimed is less than 2 lakh rupees, then documentary evidence would not be required to be submitted. However, the applicant may file a declaration based on the documentary or other evidence available with him, certifying that the incidence of such tax and interest is not passed on to any other person.


Q3. Is there any way of obtaining a provisional sanction of Refund claimed by the taxable person?

Ans. Yes, the proper officer may sanction Refund of an amount up to ninety percent of the total amount of Refund claimed, on a provisional basis in case of exporters. However, certain categories of persons may be notified, to whom provisional sanction of Refund cannot be made.


Q4. Is there any time limit on proper officer to pass final order after accepting the Refund application?

Ans. Yes, the proper officer shall issue the order within sixty days from the date of receipt of Refund application.


Q5. Under what circumstances would Refund be paid to the applicant?

Ans. On receipt of application, where the proper officer is satisfied as regards the Refund application filed, he would pass an order sanctioning the Refund. In the following situations, the Refund sanctioned would be paid to applicant,-

  • Refund of tax on goods and/or services exported out of India or on inputs or input services used in the goods and/or services which are exported out of India;
  • Refund of un-utilized input tax credit under Section 54(3)
  • Refund of tax paid on a supply which is not provided, either wholly or partially, and for which invoice has not been issued
  • Refund of tax in pursuance of Section 77
  • The tax and interest, if any, or any other amount paid by the applicant, if he had not passed on the incidence of such tax and interest to any other person; or
  • The tax or interest borne by such other class of applicants as the Central or a State Government may, on the recommendation of the Council, by notification, specify In all other cases, the amount sanctioned shall be credited to the Fund.


Q6. Is there any consumer welfare fund under GST?

Ans. Yes, this would be established by the Central/ State Government.


Q7. Can the amount of tax sanctioned as Refund be credited to fund?

Ans. Yes, an amount of tax under Section 54(5) or 54(6) can be credited to fund account.


Q8. Can amount credited to fund account be invested?

Ans. Yes, such amount can be invested by the Central/ State Government or the authorized persons.


Q9. Can amount credited to fund be utilized?

Ans. Yes, the fund can be utilized by the Central/ State Government for the welfare of the consumers.


Q10. Whether details of amount credited /debited to fund is required to be maintained?

Ans. Yes, the Central/State Government shall maintain, or specify the authority who shall maintain the accounts in this regard.


In a nutshell, the provisions of refund may look good but unless they are practically easy and quick they would demotivate the exporters and other taxpayers who are refund seeker. Coming months would do it all to test whether the GST proves to be Good and Simple Tax to the nation or not.

Hope the information will assist you in your Business & Professional endeavours. In case of any query/ information, please do not hesitate to write back to us.

Thanks & Best Regards,                                                    
Tax Team, Get Set Business Solutions
B-217, Pacific Business Park, Site-IV, Sahibabad Industrial Area,
Ghaziabad, UP, New Delhi-NCR area, India, 201010.
|Tel: – +91 120 402 6320, | Mail : – | Website: – | 

Disclaimer: The contents of this document are solely for informational purpose. It does not constitute any professional advice or recommendation of the firm. Neither the authors nor firm and its affiliates accepts any liabilities for any loss or damage of any kind arising out of any information in this document nor for any actions taken in reliance thereon. Readers are advised to consult the professional for understanding applicability of this article in the respective scenarios. While due care has been taken in preparing this document, the existence of mistakes and omissions herein is not ruled out. No part of this document should be distributed or copied (except for personal, non-commercial use) without our written permission.

Leave a Reply

Your email address will not be published. Required fields are marked *