Key Definitions and Interest Rules for GST Refunds
This article elucidates crucial definitions and interest regulations pertaining to Goods and Services Tax (GST) refunds in India. It highlights recent budget amendments affecting refund applications and interest calculations, including provisions for the COVID-19 pandemic period and specific changes for UN agencies. The guide details various 'relevant dates' for different refund scenarios and illustrates how to calculate interest on delayed payments for both standard cases and those involving appellate authority directives.
This article provides essential details regarding the Goods and Services Tax (GST) refund process. It clarifies key definitions and outlines the rules for calculating interest on delayed refunds. Below are significant updates concerning GST refunds.
Recent Amendments to GST Refund Rules
- Budget 2023: Taxpayers must now calculate interest on delayed refunds by counting days beyond 60 days from the refund application receipt until the refund payment date.
- July 5, 2022: The COVID-19 pandemic period (March 1, 2020, to February 28, 2022) can be excluded when determining the deadline for filing GST refund applications under Sections 54 or 55 of the CGST Act.
- February 1, 2022 (Budget 2022 Updates): * Section 54 has been modified to specify the form and manner for refund claims of electronic cash ledger balances. * The deadline for UN agencies to claim refunds is extended to two years from the last day of the quarter in which supplies were received, up from six months. * Restrictions on refunds for tax defaulters, previously applicable only to unutilized Input Tax Credit (ITC) refunds, now cover other refund types. * The 'relevant date' for filing refund claims for supplies to Special Economic Zones (SEZ) is further clarified in new sub-clause (ba) of clause (2) of the explanation.
- May 1, 2021: If the deadline for rejecting a full or partial refund claim falls between April 15, 2021, and May 30, 2021, it is extended. The new deadline will be the later of either 15 days after replying to a notice or May 31, 2021.
Essential Definitions for GST Refunds
Refund encompasses the following scenarios:
- Tax refunds for zero-rated supplies of goods or services.
- Refunds on input taxes or input services utilized for making zero-rated supplies.
- Tax refunds for goods provided as deemed exports.
- Refunds of unutilized Input Tax Credit (ITC) when the tax rate on inputs exceeds that on outputs.
Assessment refers to the process of determining tax liability under this Act, including:
- Self-assessments.
- Reassessments.
- Provisional assessments.
- Summary assessments.
- Best judgment assessments.
Understanding the 'Relevant Date'
GST refund applications must be submitted within two years from the 'relevant date.' This date is crucial for determining the refund claim's time limit and varies depending on the specific refund circumstance under GST.
| No. | Scenario | Specific Conditions | Determining Date |
|---|---|---|---|
| 1 | IGST Refund for Exported Goods or Accumulated ITC on Inputs/Services for such Exports | Sea/Air Transport | Departure date of ship/aircraft from India |
| Land Transport | Date vehicle crosses the border | ||
| Postal Service | Date of dispatch from the post office to an overseas destination | ||
| 2 | Tax Refund for Deemed Exports | — | Date of filing the return that declares the deemed export |
| 3 | IGST Refund for Exported Services or Accumulated ITC on Inputs/Services for such Exports | Service Completed, Payment Received, Invoice Issued (CS<-R<-I) | Invoice issuance date |
| Service Completed, Invoice Issued, Payment Received (CS<-I<-R) | Date payment is received in convertible foreign exchange | ||
| Payment Received, Service Completed, Invoice Issued (R<-CS<-I) | Invoice issuance date | ||
| 4 | Tax Refund based on Judgment/Decree/Order/Direction | — | Date when the judgment, decree, order, or direction is communicated |
| 5 | Unutilized ITC Refund | Zero-rated supplies made without tax payment OR Inverted Duty Structure | End of the financial year during which the refund claim originates |
| 6 | Tax Paid Provisionally | — | Date of tax adjustment following final assessment |
| 7 | Refund for Recipient or Non-Supplier | — | Date goods/services are received by the recipient or other person |
| 8 | Any Other Scenario Not Listed Above | — | Date of tax payment |
*CS: Completion of Service; R: Receipt of Payment; I: Issue of Invoice. The arrow notation indicates the chronological order of these events.
Explanatory Examples
Example for Scenario 2 (Deemed Exports): Consider Anuj, a sub-contractor, who delivered goods to an Export Oriented Unit (EOU) on July 25, 2017. His return for these goods was due by August 20, 2017. This transaction qualifies as a "Deemed Export." The relevant date for claiming a refund would be August 20, 2017, giving Anuj until August 19, 2019, to file his refund claim.
Example for Scenario 3 (Export of Services): If Anuj rendered services to a South Korean firm on July 28, 2017, and received payment in convertible foreign exchange on August 10, 2017, the relevant date would be August 10, 2017. Alternatively, if Anuj provided services to a Japanese company and received payment on August 10, 2017, but issued the invoice on August 20, 2017, then August 20, 2017, would be the relevant date.
Example for Scenario 5 (Zero-Rated Supplies): Anuj Hardware Technologies supplied goods to Bills Aerospace Components Private Limited (an SEZ unit) on July 20, 2017. Although the refund was claimed on September 5, 2017, the relevant date for this claim would be March 31, 2018, marking the end of the financial year.
Interest Payable on Refunds
After a refund application is submitted, a GST officer typically issues an order within 60 days, approving the full or partial claimed amount. Should the refund not be processed within this 60-day period, the applicant is entitled to receive interest at a rate of 6% per annum, calculated for the duration of the delay.
Exception: When a refund is granted based on an order or direction from an appellate authority, tribunal, or court, the interest rate on the delayed refund increases to 9% per annum.
Calculating the Delay Period for Interest: To determine the period for which 6% or 9% interest applies, count the days from the 61st day after the refund application's receipt until the actual date of refund payment. This calculation method was introduced by Budget 2023, pending notification by CBIC.
Special Provision for Casual/Non-resident Taxable Persons: Casual or non-resident taxable individuals seeking a refund of unutilized advance tax deposits made during registration can calculate the delay period from the deposit date to the refund payment date. Interest is disbursed via a Payment Advice (Form RFD-05), detailing the delayed amount, interest period, and interest sum, which is then directly credited to the claimant's registered bank account.