Refund Claims of Accumulated ITC

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    GST Payments and Appeals

    If certain conditions are met, taxpayers can claim a refund of accumulated ITC or input tax credit. First, the applicant must file form RFD-01 along with the necessary supporting documents within the time limit specified in Section 54 of the CGST Act and Rule 89 of the CGST Rules.

    Cases under which accumulated ITC claims are valid

    The taxpayers can claim ITC in the following situations

    • When a business has an inverted tax structure.
    • Regarding the export of goods or services without paying taxes, reporting the Letter of Undertaking (LUT) or bond.
    • In the case of non-taxed supplies to Special Economic Zone (SEZ) units or developers.
    • Purchases of goods or services made by foreign embassies and international organizations

    Cases under which accumulated ITC claims are invalid.

    ITC cannot be claimed if:

    • If the goods exported from India are liable for paying excise duty, then accumulated ITC is not applicable.
    • When a tax structure is reversed, the output is either nil-rated or GST-exempt.

    Frequency and the time limit for claiming accumulated ITC

    Any individual who seeks refunds is required to fill out form RDF-01 under section 54 of the CGST Act. It can be done two years from the relevant date.

    If an applicant has unused ITC from exports or supplies to SEZs (zero-rated supplies), they can file RFD-01 at any time throughout the tax year.

    If the refund claims are to be made by embassies or international organizations, they must file for a refund within six months of the last day of the quarter in which goods/services were obtained. Following the submission of the GSTR-11 return, the form used is RFD-10.

    How to calculate the maximum amount of unutilized ITC

    1. Refund of accrued ITC for zero-rated supplies not subject to tax (exports and supplies to SEZ units or developers)
      The following calculation determines the qualifying refund amount:
      Amount of Refund = [ Net ITC x (Turnover of zero-rated supply of goods + Turnover of zero-rated supply of services) ] ÷ Adjusted Total Turnover
    2. The refund of accrued ITC due to the tax structure being reversed
      The following calculation determines the qualifying refund amount:
      Amount of Refund = {[ Net ITC x (Turnover of inverted rated supply of goods and services)] ÷ Adjusted Total Turnover} – Tax liability on inverted rated supply of goods and services

    Definitions of the terms in the formulae

    • NET ITC (1)
      Input tax credit claimed for a specific period on goods and services purchased (inputs and input services).
    • NET ITC (2)
      The input tax credit is claimed on the goods purchased for the specific period (inputs).

    Turnover of zero-rated supply of goods

    It can be one of the two values listed below:

    • The value of a zero-rated sale of goods during a specific period under LUT or bond without tax payment.
    • The value is calculated as [1.5 x the value of similar domestic goods declared by the supplier].

    Turnover of zero-rated supply of services

    Total payments for the zero-rated supply of services received during the defined time progress toward the zero-rated supply of services concluded for that specific period. Still, they received in any prior period, excluding advances received in the previous period for which service is not met.

    Adjusted total turnover

    Total state or territory turnover, excluding turnover from delivering services and turnover from zero-rated and non-zero-rated service provision. The value obtained does not include the value of exempt supplies.

    The ITC or sales turnover of supplies obtained with the benefit of CGST Rules 89(4A) and 89 (4B) are not included in the net ITC turnovers at either (1) or (2).

    • On certain purchases, CGST Notification No. 48/2017, dated October 18, 2017, is applied.
    • These purchases are subject to CGST (Rate) Notifications No. 40/2017 or 41/2017, dated October 23, 2017.
    • On those purchases, customs notifications nos. 78 or 79 from October 13 2017, are required.

    Procedures for claiming and processing accrued ITC refunds

    One should follow the following steps while claiming the accumulated ITC:

    • These reimbursements are available by submitting RFD-01 to the GST site for the relevant period. A refund for numerous tax periods can also be filed in a single application across fiscal years.
    • Fill out sales details or outward supply invoices using the GST portal’s offline utility. It must apply to the period of such refund claims for each type.
    • You are to provide information about the turnover of zero-rated or inverted-rated supplies, as applicable and the adjusted total turnover for the specific period.
    • The system automatically populates the Net ITC details. The CGST, SGST, IGST, or cess values may be adjusted downward than the amounts listed in the GST returns for the relevant tax periods. Under CGST Rules 89(4A) and 89(4B), this would omit ITC on capital goods, transition, and refund.
    • The system then computes the eligible refund amount based on the formulae for zero-rated and inverted-rated supplies.
    • Specify your bank account information and attach necessary supporting papers (zero-rated, without the tax expense or inverted tax structure).
    • Following the Application Reference Number (ARN) generation, the refund application will be assigned to the Jurisdictional Refund Processing Officer for processing. Refund applicants can track the status of their refund applications using the portal’s “Track Application Status” feature.

    The following things should be noted while filing for accumulated ITC.

    • For each category, such as CGST, SGST, and IGST, the amount of refund of accrued ITC eligible for the claim cannot be greater than the sums in the corresponding electronic credit ledgers.
    • Annexure 1 must contain statements or declarations.
    • It should be noted that refund claims involving unused ITC do not necessitate the certificate in Annexure 2 from a CA/CMA.
    • When an input tax credit refund application is submitted, the applicant’s computerized credit ledger is debited by the amount sought.
    • You are qualified to apply for recovery of IGST, CGST, or SGST on account of ITC accumulated as a consequence of an inverted tax structure if you have produced Form GSTR-1 and GSTR-3B reports for the pertinent tax period.
    • The applicant must exercise caution when completing Form RFD-01 because no changes to the application are authorized after it has been filed.
    • He was supposed to swap the goods or services for the ITC return. The taxpayer must provide the number of the shipping bill, export bill, or endorsed invoice. While supplying goods, include the pertinent date details. Furthermore, if they were exporting services, they should have obtained a FIRC/BRC from a competent bank to receive a foreign exchange.

    Types of refunds that can be filled for in respect to the form RFD-01A

    • Refund of unused input tax credits (ITCs) due to exports made without paying taxes
    • Refunds of tax paid with tax payment on services exported
    • Reimbursement of unused ITC for supplies provided to an SEZ unit or SEZ developer without paying taxes
    • Refund of unused ITCs due to accumulation brought on by the tax system’s inversion
    • Refund of tax paid on deemed export supplies to supplier
    • Refund to a recipient of tax spent on deemed export supplies
    • Refund of the excess amount in the electronic cash ledger
    • Return of overpaid tax
    • Refund of tax paid on intra-state supply that is later determined to be inter-state supply, and vice versa.
    • Refund for assessment/provisional assessment/appeal/other order
    • A refund based on “any other” justification or cause

    Cases when a provisional refund is allowed

    Section 54(6), in conjunction with CGST Rule 91, governs the grant of a provisional refund. In the following cases, a refund of unused ITC is requested. Up to 90% of the submitted claims may be refunded temporarily using form RFD-04.

    • Refund of any unused ITC earned as a result of exporting products or services without paying taxes.
    • Refund of unutilized ITC for supplies to SEZ units or developers without payment of tax.

    The provisional refund shall not include ITC that has been provisionally accepted (for example, under CGST Rule 36(4)). The provisional refund order is issued within seven days of the date of acknowledgement in RFD-02. The GST refund processing officer needs to examine the RFD-06 application for final settlement and order to revalidate this.

    Situations where the refund is paid to the applicant

    Assume the applicant’s refund amount is related to one of the following types: unutilized ITC. In that instance, it can be directly paid to the applicant rather than being credited to the Consumer Welfare Fund:

    • Refund of taxes paid on inputs or input services utilized in creating such zero-rated supplies, as well as on zero-rated supplies of products or services, or both.
    • If the rate of taxes on the input exceeds the rate of taxation on the output, any unused ITC will be repaid.
    • Refund of taxes paid on the provision of goods or services, whether in whole or part, without issuing an invoice.
    • Refund of extra tax paid due to an error about whether the transaction was interstate or intrastate.
    • Any taxes and interest paid by the applicant, if any, and any additional sums if the incidence of such taxes and interest did not affect anyone else.
    • The tax or interest is incurred by any other class of applicants specified by the government in a proclamation based on the Council’s recommendations.
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