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Claiming GST Tax Refunds

What is refund?

Refund is an amount that is due to the register tax payer by the tax department. A refund can be claimed by registered taxpayer under following conditions:

  1. Exports:

Refund can be claimed on input tax paid on inward supply of goods or services:

  • which have been exported
  • which have been used in goods or services being exported

This is however applicable only if goods or services are not subject to exports duty

  1. Unutilized input tax credit (ITC) due to less outward supply or supplies as exports
  2. Inverted duty structure: Rate of tax on inward goods is higher than rate of tax on outward goods. For example, Ram Enterprises is a manufacturer of notebooks which are taxed @12% under GST regime. He buys a machinery for ₹ 100,000 @18% and pays ₹ 18,000 as input tax credit on it. Now, when he sells the notebooks worth ₹ 100,000 he is able to collect output tax credit worth ₹ 12,000 only. Hence, he still has to claim the refund of ₹ 6,000 from tax department.
  3. Deemed Exports: The tax on supply of goods deemed for exports. E.g. supplies to SEZs
  4. Failed transactions: Tax has been paid on goods/ services which have not been provided fully or partially, and for which invoice to the buyer has not been issued. For example, Unitec enterprises receives an order and advance from a customer on 10 July 2017 for deliveries to be made on 10 August 2017. For some personal reasons customer cancels the order on 01 August 2017. Since Unitec enterprises had already procured the raw material for the supplies and paid input tax credit on the same, he can now claim a tax refund on this failed transaction.
  5. Wrong tax deposit: In case IGST has been charged in place of SGST + CGST or vice versa a registered tax payer may file for a refund once the tax has been remitted correctly

Claiming GST Refund

Claiming of GST returns must be done by filing the application for refund in form of GST RFD-1 before 2 years from the relevant date of refund. The relevant date is decided as following:

Documents Checklist for filing refunds

A claimant must have the following documentary evidence while filing for Tax refunds:

  1. Documents to establish that the refund is due to the person.
  2. Documents 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 company/ person

Refund Mechanism

As soon as a claimant files for refund through form GST RFD-4, 90% of total claimed amount is refunded to the claimant on the provisional basis subject to following conditions:

  1. GST compliance rating of the person is >=5 (on a scale of 10)
  2. There is no pending appeal, review or revision pending on the amount claimed for refund
  3. During the preceding 5 years, the claimant has not been prosecuted for an amount exceeding ₹ 2.5 Crores.

Post submitting application of GST RFD-4, the tax department, if satisfied, will process the 100% claim in form of GST RFD-5 within 60 days.

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