GST is all about a smooth flow of funds and compliances till the end. To facilitate such a smooth flow, it is imperative for the Government to provide for a hassle-free refund process. The current tax structure is cumbersome, and it takes months and sometimes years to get refunds from the Government’s kitty.
GST provides for a clearer and efficient invoice based tracking system, verifying the transactions on an individual basis, thus, allowing systematic checking of the same. It comes as a huge relief for manufacturers or exporters, especially those in a 100% EOU or Special Economic Zone, whose working capital gets tied up in this cumbersome refund process.
In this article, we’ve covered the GST refund process in detail to make your life easy.
There are certain events where refund arises. Let us check out the transactions in details.
- In case of exports (including deemed exports), where there is a cumulative balance of input credit arising out of such exports or under a claim of rebate.
- Where there is an excessive payment of tax due to an inadvertent mistake.
- When there is an accumulation of credit resulting due to the output tax being nil or exempted from tax.
- A refund may arise after a provisional assessment.
- Where an appeal is for a respondent, then the amount made as a deposit towards holding such appeal shall be refunded to the appellant
- Refund after investigation or findings by an adjudicating officer.
- Refund can be provided to foreign embassies or bodies of United Nations when the purchases are made by them.
- When there is an accumulation of credit resulting due to the output tax being of a lesser rate than the input.
- Suppliers receiving discounts or credits through the issuance of credit notes.
- GST paid by foreign or international tourists are subjected to refund.
The Government will not just give away the pending amount as a refund. The taxpayers have to make an application and follow the correct procedure for fetching the refund amounts in their bank accounts.
Refund Application Process Under GST
The refund application has to be made in Form RFD-01 (to be certified by a Chartered Accountant) within a period of 2 years from the
“relevant date.” This relevant date is different for different scenarios.
- When the goods are exported through air or sea, then relevant date shall be the date on which such ship or aircraft leaves India.
- When the goods are carried by a land vehicle, then relevant date shall be the date when the goods cross the land frontier of the country
- When goods are sent through post, then relevant date shall be the date of despatch of goods from the Post Office.
- When the supply includes services, and when the same is completed before receipt of payment, then relevant date shall be the payment receipt date.
- Similarly, when the services are performed after receipt of an advance, then relevant date shall be the invoice date.
- Where refund claim is made for excess input tax credit left unutilised, then relevant date shall be the end of the financial year for which such refund claim is being made.
- Where the goods are supplied for deemed exports, i.e. supply to SEZ or 100% EOU, the relevant date shall be the return filing date related to such deemed exports was filed.
- Where refund arises due to an order passed in favour of the appellant, then relevant date shall be the date of such order.
- Where tax was paid following a provisional assessment and refund now arises, then relevant date shall be date at which such tax was adjusted.
- When the person claiming refund is not the supplier, then relevant date shall be the date at which the goods are received by such person.
- For all other cases, relevant date shall be the date of payment of tax.
It is mandatory to keep in mind these relevant dates as failure to file refund applications within mentioned time can lead to blockage of credit.
Once the application made, an acknowledgement in Form RFD-02 will be auto-generated for future references and sent across through an email and an SMS. In case the system finds some deficiencies in the refund application, then Form RFD-03 shall be sent to the taxpayer to correct his application.
Moreover, there are certain documents that must be enclosed along with the electronic refund application. Where the refund application is below Rs. 5 lakhs, then a declaration shall be made by the taxpayer indicating that the amount of refund has not been utilised by or transferred to any other person. Where such application exceeds Rs. 5 lakhs, then apart from the declaration above, a document evidencing that the amount was paid by the taxpayer shall also be attached.
When the person filing refund claim is a United Nations’ body, Consulate or a foreign embassy, then the application for refund has to be filed within 90 days from the end of the quarter for which the goods or services were procured. The application should be made in Form RFD-10.
Note: There shall be no refunds where the amount of refund is less than Rs. 1,000/-.
Scrutiny of the refund application
As per norms, it would take about 30 days to process a refund application. Where the refund claim exceeds a prescribed amount, then the same shall be subjected to an audit process. If the same qualifies for a refund, then an order shall be passed to that extent, or if it meets the criterion for being “unjustly enriching” the taxpayer, then the amount shall be transferred to the Consumer Welfare Fund. The above declaration may be required to be certified by a Chartered Accountant.
When the taxpayer claims refund of monies arising out of exports of goods or services, then an authorised officer can issue a provisional refund order in Form RFD-04 of an amount of 90% of the refund claim. Such a provisional refund can be made when the taxpayer:
- Has not been prosecuted for evading taxes for an amount exceeding Rs. 250 lakhs over a period of 5 years.
- Has a GST compliance rating of more than 5 out of 10.
- Has no appeal or review pending with respect to refunds.
Where the authorised officer feels that documents are in consonance with law, then he may pass a final order to that effect.
The Government shall maintain a cash ledger for the taxpayer. It will be constantly updated with the figures as mentioned or declared in the returns. The credit must match with the ledger or else the credit cannot be availed. It is similar in lines of Form 26AS in case of Income Tax, where the amount of TDS and TCS matches with the Form.
In all other cases, the refund application shall be processed within 60 days from the application date. Once the authorised officer adjudges the refund to be true, then he will issue a final order in Form RFD-05 within a period of 60 days from the application date. If the officer fails to pass an order within the said 60 days, then the taxpayer shall receive an interest @ 6% p.a. for the period exceeding the expiry of 60 days until the receipt of refund.
When the refund has to be adjusted against the taxable amount, then Form RFD-06 shall be passed.
Other forms that are important for refund claims:
- RFD-07: this is a show cause notice for complete rejection of a refund application
- RFD-08: Payment advice
- RFD-09: In case of delayed payments, this is an order for interest on late payments.
Refund of Input Tax Credit
There are 3 cases against which a refund claim can be made with respect to input tax credit. All the above scenarios covered refund emanating from certain specified transactions.
- Input tax credit left unutilized when the goods or services being supplied are zero rated or exempted from GST.
- When input goods or services have a higher rate of tax and the same goods or services have a lesser output tax, then the accumulated input tax credit can be claimed as refund.
- In case of a partial reverse charge, where the input tax credit cannot be used completely against the output tax.
Furthermore, no refund against unutilized input tax credit can be given when:
- Input arises out of GST paid against goods exported out of India, that were taxable to excise duty
- The supplier has already availed the benefit of duty drawback paid with respect to excise duty.
The process is very thorough in itself and once followed properly, then availing refund can become very smooth and hassle free. It will change the face of the long drawn refund process and give a boost to the manufacturing or export industry. Those refunds, which usually took years to pass can now be taken in just 60 days. The strong IT system and forward thinking of the GSTN have enabled this initiative.
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