Understanding GST Refunds for Unutilized Input Tax Credit

The Goods and Services Tax (GST) framework permits businesses to claim refunds for taxes and Input Tax Credit (ITC) under certain conditions. Applicants are required to submit Form RFD-01 along with necessary documentation, adhering to the deadlines specified in Section 54 of the CGST Act and Rule 89 of the CGST Rules. This guide explores the refund process for unutilized ITC, covering eligibility, application procedures, time limits, maximum refund calculations, required declarations, and scenarios for provisional refunds.

Recent Updates On August 28th, 2025, the GSTN released an advisory detailing system modifications for processing refunds related to assessment, enforcement, appeal, revision, or other orders (ASSORD). These changes include allowing refund claims regardless of Demand ID status, provided the demand amount is negative. Individuals can also claim refunds when the minor head has a negative balance, even if the cumulative balance is positive or zero. The negative balance automatically populates into the RFD-01 application, and the GST portal suggests the most recent relevant demand order, such as an order-in-original, rectification order, or appellate order.

Scenarios for Claiming Refund of Accumulated ITC

Taxpayers are eligible to claim a refund for accumulated ITC in the following scenarios:

When an inverted tax structure is present in the business operations.
For the export of goods or services performed without tax payment, by utilizing a Letter of Undertaking (LUT) or bond.
In the case of supplies made to Special Economic Zone (SEZ) units or developers without tax payment.
By foreign embassies and international organizations on their purchases of goods or services.
Refunds resulting from the finalization of provisional assessments.
Excess balance maintained in the electronic cash ledger.
Due to overpayment of tax caused by inadvertent errors or misclassification.

Conversely, unutilized ITC refunds are not permitted in these situations:

If goods exported from India are subject to excise duty, the accumulated unutilized ITC will not be eligible for a GST refund.
If the goods supplier has claimed a duty drawback on excise duty paid or sought a refund of IGST paid on such supply.
In an inverted tax structure, if the output is nil-rated or exempt from GST.

Timelines and Frequency for Accumulated ITC Refund Claims

According to Section 54 of the CGST Act, any person seeking a refund of GST or associated interest must file an application using Form RFD-01 within two years from the "relevant date." This "relevant date" varies depending on the specific type of refund being claimed. For unutilized ITC stemming from exports or supplies to SEZ (classified as zero-rated supplies), applicants may submit Form RFD-01 at the conclusion of any tax period. In instances where embassies or international organizations claim refunds, the application (Form RFD-10) must be filed before six months expire from the last day of the quarter in which the goods or services were received, following the submission of the GSTR-11 return.

Calculating the Maximum Refund for Unutilised ITC

Refund of Accumulated ITC for Zero-Rated Supplies without Tax Payment (Exports and Supplies to SEZ Units or Developers) The formula for determining the eligible refund amount is: Amount of Refund = [ Net ITC x (Turnover of zero-rated supply of goods + Turnover of zero-rated supply of services) ] ÷ Adjusted Total Turnover
Refund of Accumulated ITC due to Inverted Tax Structure The formula for determining the eligible refund amount is: 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

The terms utilized in these formulae are defined as follows:

Net ITC for (1): Represents the input tax credit claimed for inputs and input services purchased during the specific period.
Net ITC for (2): Refers to the input tax credit claimed for inputs purchased during the specified period.
Turnover of zero-rated supply of goods: This is the lesser of two values:
The value of zero-rated goods sold without tax payment under LUT or bond for the particular period.
A value calculated as [1.5 x value of similar domestic goods as declared by the supplier].
Turnover of zero-rated supply of services: The total payments received during the period for zero-rated services, including advances for zero-rated services completed in that period but received previously, and excluding advances received in prior periods for services not yet finished.
Adjusted total turnover: The aggregate turnover within the state or Union Territory, excluding turnover from services provision and both zero-rated and non-zero-rated services. This value also excludes exempt supplies.

It is important to note that Net ITC and turnovers for both (1) and (2) do not include ITC or sales turnover of supplies that benefited from CGST Rules 89(4A) and 89(4B), specifically those taken under:

CGST notification no. 48/2017 dated October 18, 2017.
CGST (Rate) notifications no. 40/2017 or 41/2017 dated October 23, 2017.
Customs notifications no. 78/2017 or 79/2017 dated October 13, 2017.

Procedure for Claiming and Processing Accumulated ITC Refunds

The process for claiming these types of refunds is outlined below: Refunds for accumulated ITC can be sought by submitting Form RFD-01 via the GST portal for the specific period. It is also possible to consolidate refund claims for multiple tax periods, even across different financial years, into a single application.

Utilize the offline utility available on the GST portal to input details of sales invoices or outward supplies relevant to the refund claim period. The required statement or format will differ based on the refund type.
After logging into the portal, provide details regarding the turnover of zero-rated or inverted rated supplies, as applicable. Additionally, include the adjusted total turnover for the specific period.
The system will automatically populate Net ITC details. The values for CGST, SGST, IGST, or cess can be reduced compared to the amounts reported in the respective GST returns for the tax periods. This excludes ITC on capital goods, transitional ITC, and refunds provided under CGST Rules 89(4A) and 89(4B).
Subsequently, the system automatically computes the eligible refund amount based on the relevant formulae for zero-rated and inverted rated supplies.
Furnish bank account details and upload any supporting documents required for the particular refund type (e.g., zero-rated without tax payment or inverted tax structure).
Upon generation of the Application Reference Number (ARN), the refund application will be assigned to the Jurisdictional Refund Processing Officer for further action.
Applicants can monitor the status of their refund applications using the "Track Application Status" feature on the portal.

Key considerations when filing a refund application for accumulated ITC include:

The eligible refund amount for accumulated ITC under each head (CGST, SGST, IGST) cannot exceed the amounts available in the electronic credit ledgers for those respective heads.
Statements or declarations must be provided in Annexure 1.
A certificate from a CA/CMA in Annexure 2 is not mandatory for refund claims related to unutilized ITC.
When an application for an input tax credit refund is submitted, the applicant's electronic credit ledger is debited by an equivalent amount.
If GSTR-1 and GSTR-3B reports have been submitted for the applicable tax period, a refund of IGST, CGST, or SGST can be sought due to ITC accumulated under an Inverted Tax Structure.
Care must be taken when completing Form RFD-01, as no modifications can be made after submission.
Applicants must have provided the goods or services for which the ITC refund is requested. For goods, the taxpayer needs to provide the Shipping Bill/Bill of Export/Endorsed Invoice No. and relevant date. For services exports, a FIRC/BRC from the authorized bank for foreign exchange receipt should have been obtained.

Required Declarations and Annexures for Refund Application

Declarations Declarations are required for all types of refund claims related to unutilized ITC. Specific declarations are also needed for refunds pertaining to supplies made to SEZ units and SEZ developers.

Annexure-1 Refund on account of inverted tax structure (Statement 1 and Statement 1A):

Statement 1: Turnover and Refund Calculation

Turnover of inverted rated supply of goods and services	Tax payable on such inverted rated supply of goods and services	Adjusted total turnover	Net input tax credit	Maximum refund amount to be claimed [(1×4÷3)-2]
1	2	3	4	5

Statement 1A: Details of Inward and Outward Supplies

Sl. no.	Details of documents of inward supplies received on inputs received	Tax paid on inward supplies	Details of documents of outward supplies issued	Tax paid on outward supplies
Type of inward supplies	GSTIN of Supplies/Self GSTIN	Type of document	No./B/E	Port code
1	2	3	4	5

Refund of unutilised ITC on account of export of goods or services without tax payment (Statement 3 and Statement 3A):

Statement 3: Export Document Details

Sl.no.	Documents Details	Goods/ Services (G/ S)	Shipping bill/ Bill of export	EGM Details	BRC/FIRC
Type of Document	No.	Date	Value	Port code	No.
1	2	3	4	5	6

Statement 3A: Zero-Rated Supply Refund Calculation

Turnover of zero-rated supply of goods and services	Net input tax credit	Adjusted total turnover	Refund amount (1×2÷3)
1	2	3	4

Refund of unutilised ITC on account of supplies made to SEZ unit or SEZ developer without tax payment (Statement 5 and Statement 5A):

Statement 5: SEZ Supply Document Details

Sl. no.	Document Details	Goods/Services (G/S)	Shipping bill/Bill of export/Endorsed invoice no.
Type of Document	No.	Date	Value

1	2	3	4

Statement 5A: SEZ Zero-Rated Supply Refund Calculation

Turnover of zero-rated supply of goods and services	Net input tax credit	Adjusted total turnover	Refund amount (1×2÷3)
1	2	3	4

Annexure 2 is not required for taxpayers claiming a refund of unutilized ITC.

Provisional Refund Eligibility and Conditions

Section 54(6), in conjunction with CGST Rule 91, addresses the granting of provisional refunds. For refund claims involving unutilized ITC, a provisional refund can be issued via Form RFD-04, covering up to 90% of the claimed amount, in the following circumstances:

Refund of unutilized ITC arising from the export of goods or services without tax payment.
Refund of unutilized ITC due to supplies made to SEZ units or developers without tax payment.

The provisional refund granted excludes any provisionally accepted ITC (e.g., under CGST Rule 36(4)). The provisional refund order is typically issued within seven days of the acknowledgment date in RFD-02. This order is not revalidated by the GST refund processing officer during the final settlement and order in RFD-06.

Conditions for Direct Refund Payment to the Applicant

If the refund amount claimed relates to the following categories, including unutilized ITC, it can be paid directly to the applicant instead of being credited to the Consumer Welfare Fund:

Refund of tax paid on zero-rated supplies of goods, services, or both, or on inputs or input services used in making such zero-rated supplies.
Refund of unutilized ITC where the input tax rate is higher than the output tax rate.
Refund of tax paid on the supply of goods/services provided entirely or partially when an invoice was not issued.
Refund of tax paid in excess due to uncertainty regarding whether a transaction was interstate or intrastate.
The tax and any interest or other amounts paid by the applicant, provided the incidence of such tax and interest was not passed on to another person.
Tax or interest borne by other classes of applicants specified by the government through notification, based on Council recommendations.