GST Refund on Export of Services

1. Background

Under the Goods and Services Tax (GST) regime, exports are treated as zero-rated supplies, enabling exporters to claim refund of taxes paid or input tax credit (ITC) accumulated.

In this blog, we tried our best to outline the legal provisions, refund mechanisms, compliance requirements, and procedural steps applicable to refund claim on export of services.

2. Meaning of Export of Services

As per Section 2(6) of the CGST Act, 2017, a supply qualifies as “export of services” when all the following conditions are satisfied:

  1. Supplier of service is located in India.
  2. Recipient of service is located outside India.
  3. Place of supply is outside India.
  4. Payment is received in:
    • Convertible foreign exchange; or
    • Indian Rupees wherever permitted by RBI.
  5. Supplier and recipient are not merely establishments of a distinct person.

All five conditions must be fulfilled to qualify as export of services.

3. Refund Mechanisms for Export of Services

Under Section 16(3) of the IGST Act, exporters may choose one of the following two routes:

Option A: Export Without Payment of IGST (Under LUT/Bond)

  • Services exported without payment of IGST.
  • Refund claimed for unutilized Input Tax Credit (ITC).
  • Governed by:
    • Section 16(3)(a) of IGST Act
    • Section 54 of CGST Act
    • Rule 96A of CGST Rules

Key Conditions:

  • LUT (Form GST RFD-11) must be filed prior to export.
  • Payment must be received within:
    • 1 year from invoice date; or
    • Period permitted under FEMA (including extensions).
  • If payment not received within time:
    • IGST along with interest must be paid within 15 days.
    • Failing which, recovery proceedings may be initiated.

Advantages:

  • No upfront tax payment.
  • Regular liquidity maintained.

Limitation:

  • Refund limited to accumulated ITC (capital goods credit not refundable).

Option B: Export With Payment of IGST

  • IGST is paid at time of export.
  • Refund claimed for the IGST paid.

Applicable Provisions:

  • Section 16(3)(b) of IGST Act
  • Rule 96 of CGST Rules

Procedure:

  • For services: Refund application filed in Form GST RFD-01.
  • Refund processed as per Rule 89.
  • Amount credited to registered bank account.

Advantages:

  • Allows utilization of entire ITC including capital goods credit.
  • Faster automated processing (where applicable).

4. Section 54 – Key Legal Provisions

Time Limit

Refund application must be filed within 2 years from the relevant date.

For export of services, relevant date is:

  • Date of receipt of payment (if service completed earlier), or
  • Date of invoice (if payment received in advance).

Provisional Refund

  • 90% of refund may be granted provisionally.
  • Final order to be issued within 60 days.

Minimum Refund Threshold

  • No refund granted if amount is less than ₹1,000.00

Withholding of Refund

Refund may be withheld if:

  • Returns not filed.
  • Outstanding tax, interest or penalty payable.
  • Proceedings pending that may adversely affect revenue.

Unjust Enrichment

Refund is allowed only if tax incidence has not been passed on.

5. Rule 96A – Compliance under LUT

Particulars    Requirement
LUT Filing    Form GST RFD-11
Time for Receipt of Payment    1 year or FEMA permitted period
Non-Compliance    Pay tax + interest within 15 days
Recovery    As per Section 79

Failure to comply may result in withdrawal of LUT facility.

6. Rule 96B – Recovery in Case of Non-Realisation

Although primarily applicable to export of goods, key principle:

  • If export proceeds are not realized within FEMA period,
    • Refund must be repaid within 30 days.
    • Interest applicable under Section 50.
  • If RBI writes off the unrealized amount on merits,
    • Refund is not recovered.

7. Refund Process – Step-by-Step

  1. Determine refund category:
    • Export with LUT
    • Export with IGST payment
    • SEZ supply
    • Inverted duty structure
    • Excess balance in electronic cash ledger
  2. File refund application:
    • Form GST RFD-01
  3. Acknowledgement:
    • RFD-02 (if complete)
    • RFD-03 (deficiency memo, if incomplete)
  4. Provisional refund (if applicable):
    • RFD-04
  5. Final order:
    • RFD-06
  6. Payment:
    • RFD-05

8. Checklist of documents

To ensure smooth processing, maintain:

  • Export invoices
  • LUT copy (if applicable)
  • FIRC / BRC evidencing receipt of foreign currency
  • GSTR-1 and GSTR-3B reconciliation
  • Statement of invoices
  • Bank realization proof
  • Undertaking for unjust enrichment (if required)

9. Strategic GST refund Considerations

Criteria  LUT Route    IGST Route
Upfront tax payment  No    Yes
Working capital impact  Low    Higher
Capital goods credit  Not refundable    Can be utilized
Compliance burden  Moderate    Moderate
Risk if payment delayed  High (tax + interest)    Lower

Selection of GST refund methoss should be based on:

  • Working capital position
  • ITC structure
  • Volume of exports
  • Capital goods credit position
  • Realization cycle

10. Conclusion

Export of services under GST offers significant tax neutrality through refund mechanism. However, strict compliance with documentation, timelines, and FEMA requirements are must.

Businesses should:

  • Monitor foreign remittance timelines,
  • Reconcile returns regularly,
  • Choose refund route strategically,
  • File applications within statutory limitation period.

Failure to comply may result in recovery proceedings, interest liability, or denial of refund.

Thank you.

Courtesy: Team Indirect Tax.

Ganashri Advisers India LLP | +91 94801 18310 | +91 83106 26652 |

 https://www.ganashri.com | cg@ganashri.com

Disclaimer

The information contained in this blog is provided for general guidance and informational purposes only. While efforts have been made to ensure the accuracy and timeliness of the deadlines, requirements and regulatory updates listed, laws and regulations are subject to change and may vary based on jurisdiction, industry, business constitution and specific circumstances.

This blog does not constitute legal, tax, accounting, or professional advice, nor should it be relied upon as a substitute for consultation with qualified advisors. Users are responsible for independently verifying all dates, obligations and compliance requirements applicable to their organization. The team Ganashri assumes no responsibility or liability for any errors, omissions, or consequences resulting from the use of this blog.