Understanding Goods and Services Tax Payments and Refund Procedures

Goods and Services Tax (GST) payments and refunds are crucial financial operations for all taxpayers. Indian GST legislation outlines specific compliance procedures for submitting GST refund applications via designated forms and returns, as well as for processing GST payments through challans. Generally, GST payments are required when filing GSTR-3B, based on the computed net GST liability. This document provides a comprehensive overview of both GST payment methods and refund mechanisms.

Latest Updates on GST Refunds

Advisory on System Changes for Refunds due to Assessment Orders

As of August 28th, 2025, GSTN has issued an advisory detailing system modifications for processing refunds stemming from assessment, enforcement, appeal, revision, or other judicial orders (ASSORD). Key changes include:

• Refunds can now be claimed regardless of the Demand ID status, provided the demand amount is negative.
• Taxpayers may claim refunds even if a minor head shows a negative balance, as long as the cumulative balance is positive or zero.
• Only negative balances are automatically populated into RFD-01 refund applications.
• The GST portal will automatically suggest the most relevant demand order for a negative balance, such as an original order, rectification order, or appellate order.

Revised Refund Filing for Specific Export and SEZ Transactions

Effective May 8th, 2025, a new GSTN advisory has been released, changing the refund filing process for services exported with tax payment, supplies to Special Economic Zone (SEZ) units/developers with tax payment, and deemed exports. Moving forward, refund applications can be submitted without needing to declare a specific tax period. Instead, applicants must select the appropriate refund category, provide invoice-based details, upload eligible invoices, and submit relevant statements (Statement 2 for exports, Statement 4 for SEZ supplies, and Statement 5B for deemed exports). It is mandatory to ensure that GSTR-1 and GSTR-3B filings are up to date at the time of refund application. These changes also apply to refunds claimed by recipients of deemed exports.

A. GST Payments

Types of Payments Required Under GST

Under the GST framework, taxes are primarily categorized into three main types:

• Integrated Goods and Services Tax (IGST): Applicable to inter-state supplies and paid to the central government.
• Central Goods and Services Tax (CGST): Applicable to intra-state supplies and paid to the central government.
• State Goods and Services Tax (SGST): Applicable to intra-state supplies and paid to the state government.

The applicability of these taxes depends on the nature of the transaction:

In addition to these, registered dealers must also manage other payments:

• Tax Deducted at Source (TDS): This mechanism involves the deductor subtracting tax before making payment to a supplier. For instance, if a government agency awards a road construction contract worth Rs 10 lakh to a builder, TDS at 1% (Rs 10,000) will be deducted by the agency before the balance is paid to the builder.

• Tax Collected at Source (TCS): Primarily relevant for e-commerce aggregators, TCS involves a 2% deduction from payments made to dealers selling through e-commerce platforms. This provision is currently relaxed and will apply only when specifically notified by the government.

• Reverse Charge Mechanism (RCM): Under RCM, the responsibility for paying tax shifts from the supplier of goods and services to the recipient. To understand more about reverse charge, refer to the article 'Know all about Reverse Charge under GST'.

• Interest, Penalty, Fees, and Other Payments: These additional charges may also be applicable.

Calculating the Required GST Payment

Generally, the Input Tax Credit (ITC) is subtracted from the outward tax liability to determine the total GST payment due. TDS and TCS amounts are then deducted from this total GST to arrive at the net payable figure. Any applicable interest and late fees are subsequently added to calculate the final amount. It is important to note that ITC cannot be claimed against interest and late fees; these must be paid in cash. The calculation method varies depending on the type of dealer:

• Regular Dealer: A regular dealer is obligated to pay GST on their outward supplies and can claim ITC on their purchases. The GST payable by a regular dealer is the difference between their outward tax liability and the ITC claimed.

• Composition Dealer: GST payment for a composition dealer is simpler. A dealer opting for the composition scheme pays a fixed percentage of GST on their total outward supplies. The specific GST rate depends on the composition dealer's business type.

Who is Responsible for Making GST Payments?

The following entities are required to make GST payments:

1. Registered dealers who have an existing GST liability.
2. Registered dealers liable to pay tax under the Reverse Charge Mechanism (RCM).
3. E-commerce operators, who are responsible for collecting and remitting TCS.
4. Dealers obligated to deduct TDS.

When are GST Payments Due?

GST payments must be made when filing GSTR 3, which is typically by the 20th of the following month.

Understanding Electronic Ledgers

Electronic ledgers are maintained on the GST Portal. These ledgers record various transactions related to a taxpayer's GST obligations.

Methods for Making GST Payments

GST payments can be processed in two primary ways:

• Payment through Credit Ledger: Dealers can utilize their ITC balance from the credit ledger to settle GST liabilities. However, ITC can only be used for tax payments; interest, penalties, and late fees cannot be paid using ITC and must be settled via the cash ledger.

• Payment through Cash Ledger: GST payments can be made online or offline. A challan must be generated on the GST Portal for both online and offline payments. For tax liabilities exceeding Rs 10,000, online payment is mandatory.

Penalties for Non-Payment or Delayed Payment

Failure to pay GST, or making a short or delayed payment, incurs an 18% interest rate. Additionally, a penalty will be imposed, which is the higher of Rs 10,000 or 10% of the unpaid or short-paid tax amount.

B. GST Refunds

What Constitutes a GST Refund?

A GST refund typically arises when the GST paid exceeds the actual GST liability. The GST framework includes a standardized online refund process with predefined time limits to ensure clarity and efficiency.

Circumstances Allowing for Refund Claims

Refunds can be claimed in various situations, 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 Input Tax Credit (ITC) because the output supply is 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 a GST Refund

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

Time Limits for Claiming GST Refunds

The general time limit for claiming a refund is two years from the "relevant date." This relevant date varies depending on the specific reason for the refund claim:

Furthermore, if a refund is delayed, the government is liable to pay interest at a rate of 24% per annum.

Procedure for Claiming a GST Refund

The refund application must be submitted using Form RFD 01 within two years from the relevant date. This form should also be certified by a Chartered Accountant.