Understanding Key Terms and Interest on GST Refunds
This article provides a comprehensive overview of essential definitions and interest rates pertaining to Goods and Services Tax (GST) refunds in India. It clarifies key terms such as 'Refund' and 'Assessment' and details how the 'Relevant Date' is determined for various refund claims. Furthermore, the guide explains the calculation of interest on delayed refunds, including specific rates and conditions set by the GST law and recent budget amendments.
This article serves as a supplementary guide to our discussions on the GST refund process. It clarifies important definitions and the rules for calculating interest on delayed refunds.
Latest Updates on GST Refunds
Recent legislative changes have refined the GST refund framework:
- Budget 2023: Taxpayers should now compute interest on delayed refunds by counting the days beyond sixty days from the refund application receipt date until the actual refund payment date.
- July 5, 2022: The period between March 1, 2020, and February 28, 2022 (COVID-19 pandemic period), can be excluded when determining the time limit for submitting GST refund applications under Sections 54 or 55 of the CGST Act.
- February 1, 2022 (Budget 2022):
- Section 54 was modified to specify the form and manner for refund claims of any electronic cash ledger balance.
- The claim period for UN agencies to seek refunds has been extended to two years from the last day of the quarter in which the supply was received, up from six months.
- Restrictions on refunds for tax defaults, previously limited to unutilized input tax credit (ITC) refunds, now apply to other types of refunds as well.
- A new sub-clause (ba) of clause (2) of the explanation clarifies the relevant date for filing refund applications for supplies to Special Economic Zones (SEZ).
- May 1, 2021: If the deadline for issuing orders to reject a refund claim, either partially or wholly, falls between April 15, 2021, and May 30, 2021, it is extended. The new deadline will be the later of two dates: (1) 15 days after responding to a notice, or (2) May 31, 2021.
Understanding Key Definitions
To effectively navigate GST refunds, several terms require clear understanding:
-
"Refund" encompasses:
- Tax refunds on zero-rated supplies of goods or services.
- Refunds for inputs or input services used in making zero-rated supplies.
- Tax refunds on goods considered deemed exports.
- Refunds of unutilized input tax credit (ITC) resulting from a higher tax rate on inputs compared to outputs.
-
"Assessment" refers to the determination of tax liability under the GST Act, including:
- Self-assessment
- Reassessment
- Provisional assessment
- Summary assessment
- Best judgment assessment.
Defining the 'Relevant Date' for Refunds
GST refund applications must be submitted within two years from the designated "relevant date." This date is crucial for calculating the claim period and varies depending on the specific refund scenario.
| No. | Situation | Condition if any | Relevant date |
|---|---|---|---|
| 1 | Refund of IGST paid on export of goods or accumulated ITC for such supplies | Mode: By Sea/Air | Date of departure of Ship/Aircraft from India |
| Mode: On Land | Date on which Vehicle crossed the frontier | ||
| Mode: By Post | Date of Dispatch by Post office to destination outside India | ||
| 2 | Refund of Tax paid on Deemed Exports | — | Date when the Return is furnished declaring the deemed export |
| 3 | Refund of IGST paid on export of services or accumulated ITC for such supplies | Where, CS <– R <– I | Date of Issue of Invoice |
| Where, CS <– I <– R | Date of receipt of Payment in Convertible Foreign Exchange | ||
| Where, R <– CS <– I | Date of Issue of Invoice | ||
| 4 | Refund of Tax due to Judgement/decree/order/direction | — | Date of communication of such judgement/decree/order/direction |
| 5 | Refund of Unutilised ITC | Zero-rated supplies made without tax payment | The End of the Financial year in which refund claim arises |
| Inverted Duty Structure | |||
| 6 | Where Tax is paid provisionally | — | Date of adjustment of tax after the final assessment |
| 7 | Recipient / Any person other than supplier | — | Date of receipt of Goods/services by recipient/ such other person |
| 9 | Other cases not mentioned above | — | Date of Payment of Tax |
*Note: CS: Completion of Service; R: Receipt of Payment; I: Issue of Invoice. The timeline CS <– R <– I implies service completion before payment receipt, followed by invoice issuance. Other sequences should be interpreted similarly.
Practical Examples for Relevant Dates
Let's consider a few illustrations:
-
Example for Sl. no. 2 (Deemed Exports): Anuj, a sub-contractor, supplied goods to an Export Oriented Unit (EOU) on July 25, 2017. He was required to file the return for these goods by August 20, 2017. This transaction is categorized as a "Deemed Export." The relevant date for this purpose is August 20, 2017. Anuj has until August 19, 2019, to claim the refund for these supplies.
-
Example for Sl. no. 3 (Export of Services): Anuj provided services to a South Korean company on July 28, 2017, and received payment in convertible foreign exchange on August 10, 2017. The relevant date, in this instance, is August 10, 2017. If Anuj provided services to a Japanese company, issued an invoice on August 20, 2017, but received payment on August 10, 2017, the relevant date would be August 20, 2017.
-
Example for Sl. no. 5 (Zero-rated Supplies): Anuj Hardware Technologies supplied goods to Bills Aerospace Components Private Limited (an SEZ unit) on July 20, 2017. He claimed a refund for these goods on September 5, 2017. The relevant date for this claim would be March 31, 2018.
Calculating Interest on Delayed Refunds
Once a refund application is submitted, the GST officer typically issues an order for a full or partial refund within 60 days if satisfied with the claim. If the refund is not processed within this 60-day period, interest at 6% per annum must be paid for the duration of the delay. This rate is calculated on the amount of the delayed refund.
Special Case: If 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.
Interest Calculation Period: The period for which interest (at 6% or 9%) is calculated starts beyond sixty days from the date the refund application was received and extends up to the date the refund payment is made. This methodology was amended through Budget 2023, though it awaits formal notification by the CBIC.
Exception for Casual/Non-resident Taxable Persons: A casual taxable person or a non-resident taxable person claiming a refund of the unutilized advance tax deposit made during registration is eligible for interest calculated from the date of deposit until the date of refund payment. The interest amount, along with the delayed refund, is communicated via a Payment Advice (RFD-05), which specifies the delayed amount, the delay period, and the interest paid. This interest is directly credited to the claimant's registered bank account declared during GST registration.