Understanding Goods and Services Tax Payments and Refund Procedures in India

Goods and Services Tax (GST) payments and refunds are fundamental aspects for all taxpayers, involving monetary transactions. The GST framework outlines clear compliance procedures for applying for GST refunds using designated forms and for making GST payments through challans. GST payment becomes necessary when filing GSTR-3B, based on the computed net GST liability. This article provides a comprehensive overview of both GST payment mechanisms and refund processes.

Latest Updates on GST Refund

August 28, 2025: GSTN has issued an advisory clarifying system modifications to facilitate refunds arising from assessment, enforcement, appeal, revision, or any other order (ASSORD). Key changes include:

Taxpayers can now claim refunds regardless of the Demand ID status, provided the demand amount is negative.
Refund claims are permissible even if a minor head shows a negative balance, as long as the cumulative balance is positive or zero.
Only negative balances will automatically populate into RFD-01 refund applications.
The GST portal will automatically suggest the most recent demand order, such as an order-in-original, rectification order, or appellate order, that is associated with a negative balance.

May 8, 2025: A new GSTN advisory has been released, detailing changes to the refund filing process for specific scenarios: export of services with tax payment, supplies to SEZ units or developers with tax payment, and deemed exports. Going forward, refund applications for these categories can be filed without specifying a tax period. Instead, applicants must select the refund category, provide invoice-based details, and upload eligible invoices along with relevant statements (Statement 2 for exports, Statement 4 for SEZ supplies, and Statement 5B for deemed exports). It is crucial to ensure that GSTR-1 and GSTR-3B have been filed up to the date of the refund application. Similar changes also apply to refunds claimed by recipients of deemed exports.

A. GST Payments

What are the Payments to be Made Under GST?

Under the GST regime, the primary tax payments are categorized into three types:

Integrated Goods and Services Tax (IGST): Applicable for interstate supplies and paid to the central government.
Central Goods and Services Tax (CGST): Applicable for intrastate supplies and paid to the central government.
State Goods and Services Tax (SGST): Applicable for intrastate supplies and paid to the state government.

The following table illustrates when each type of GST applies:

CIRCUMSTANCES	CGST	SGST	IGST
Goods sold from Delhi to Bombay	NO	NO	YES
Goods sold within Bombay	YES	YES	NO
Goods sold from Bombay to Pune	YES	YES	NO

In addition to the above, dealers are also required to make these payments:

Tax Deducted at Source (TDS): This mechanism involves a dealer deducting tax before making a payment to a supplier. For instance, if a government agency awards a road laying contract worth Rs 10 lakh to a builder, it would deduct TDS at 1% (Rs 10,000) when making the payment, remitting the balance to the builder. Learn more about TDS under Goods and Service Tax.
Tax Collected at Source (TCS): Primarily applicable to e-commerce aggregators, this means that any dealer selling through an e-commerce platform receives payment after a 2% TCS deduction. This provision is currently relaxed and will apply only when notified by the government. Further details can be found on TDS and TCS under GST.
Reverse Charge: Under this system, the obligation to pay tax shifts from the supplier of goods and services to the recipient. To understand more about reverse charge, refer to this article: Know all about Reverse Charge under GST.
Interest, Penalty, Fees, and Other Payments: These additional charges may apply under specific circumstances.

How to Calculate the GST Payment to be Made?

Generally, the Input Tax Credit (ITC) is deducted from the Outward Tax Liability to determine the total GST payment due. Any TDS/TCS amounts are then subtracted from this total GST to arrive at the net payable figure. Interest and late fees, if applicable, are added to compute the final amount. It is important to note that ITC cannot be utilized to pay interest and late fees; these must be settled in cash. The calculation method varies for different types of dealers:

Regular Dealer: A regular dealer is responsible for paying GST on their outward supplies and can claim ITC on purchases. The GST payable is the difference between their outward tax liability and the ITC claimed.
Composition Dealer: For a dealer opting for the composition scheme, GST payment is simpler, involving a fixed percentage of GST on total outward supplies, based on the nature of their business.

Who Should Make the Payment?

Specific types of dealers are mandated to make GST payments:

A registered dealer, if a GST liability exists.
A registered dealer obligated to pay tax under the Reverse Charge Mechanism (RCM).
E-commerce operators, who must collect and remit TCS.
Dealers required to deduct TDS.

When Should GST Payment be Made?

GST payment is typically due by the 20th of the following month, coinciding with the filing of GSTR-3B.

What are the Electronic Ledgers?

Electronic ledgers, maintained on the GST Portal, serve as essential records. More information on these can be found in e-ledgers under GST.

How to Make GST Payment?

GST payments can be made through two primary methods:

Payment through Credit Ledger: Dealers can use their accumulated ITC for GST payment, but this credit can only be applied to tax liabilities, not to interest, penalties, or late fees.
Payment through Cash Ledger: GST payments can be made either online or offline. A challan must be generated on the GST Portal for both modes. For tax liabilities exceeding Rs 10,000, online payment is mandatory.

What is the Penalty for Non-Payment or Delayed Payment?

If GST is underpaid, unpaid, or paid late, an interest rate of 18% is levied on the dealer. Additionally, a penalty is imposed, which is the higher of Rs. 10,000 or 10% of the tax short-paid or unpaid.

B. GST Refunds

What is a GST Refund?

A GST refund typically arises when the amount of GST paid surpasses the actual GST liability. The GST framework features a standardized, online refund claim process with defined time limits to ensure clarity and efficiency.

When Can a Refund be Claimed?

Various circumstances permit a GST refund claim, including:

Excess tax payment due to errors or omissions.
Export of goods or services (including deemed exports) under a claim of rebate or refund.
Accumulation of ITC because the output supplies are tax-exempt or nil-rated.
Refund of tax paid on purchases made by Embassies or UN bodies.
Tax refunds for international tourists.
Finalization of provisional assessments.

How to Calculate GST Refund?

Consider a straightforward example of excess tax payment: Mr. B's GST liability for September was Rs 50,000, but he mistakenly paid Rs 5 lakh. Mr. B has an excess payment of Rs 4.5 lakh, which he can claim as a refund. The deadline for claiming this refund is two years from the date of payment.

What is the Time Limit for Claiming the Refund?

The time limit for claiming a refund is two years from the relevant date, which varies depending on the case. Below are relevant dates for some common scenarios:

Reason for claiming GST Refund	Relevant Date
Excess payment of GST	Date of payment
Export or deemed export of goods or services	Date of despatch/loading/passing the frontier
ITC accumulates as output is tax exempt or nil-rated	Last date of financial year to which the credit belongs
Finalisation of provisional assessment	Date on which tax is adjusted

Furthermore, if a refund payment is delayed by the government, interest at 24% per annum is payable.

How to Claim GST Refund?

The refund application must be submitted in Form RFD-01 within two years from the relevant date. The form also requires certification by a Chartered Accountant.