Refund of IGST Paid on Exports and Unutilised ITC

Understand Refund of IGST Paid on Exports and Unutilised ITC

Key rules to remember

Zero-rated supply options

Option 1: Export with IGST → refund of IGST paid | Option 2: Export under bond/LUT without IGST → refund of unutilised ITC

Under Section 16 of the IGST Act, the exporter chooses. The refund is under Section 16(3) of the IGST Act read with Section 54 of the CGST Act. Do not claim both on the same supply.

Refund of unutilised ITC (Rule 89(4))

Refund = (Turnover of zero-rated supply of goods + Turnover of zero-rated supply of services) × Net ITC ÷ Adjusted Total Turnover − Tax payable on such zero-rated supply of services

Applies to exports without payment of tax. The refund cannot exceed the balance in your electronic credit ledger.

Net ITC

Net ITC = ITC availed on inputs and input services during the relevant period, other than ITC for which refund is claimed under sub-rule (4A) or (4B)

Net ITC covers only inputs and input services. ITC on capital goods is not part of inputs and input services, so it is not in Net ITC. Do not include it.

Turnover of zero-rated supply of goods

Lower of: (i) the FOB value declared in the shipping bill/bill of export, and (ii) the value declared in the tax invoice

Applies to goods only, not services. Counts only exports made without payment of tax. There is no 1.5 times cap in the current rule, so do not apply one.

Adjusted Total Turnover

Turnover in the State/UT of the person, excluding the value of exempt supplies other than zero-rated supplies, and excluding the turnover of periods for which no refund is claimed (Rule 89(4))

It includes zero-rated turnover and taxable domestic turnover. Exempt supplies other than zero-rated supplies are taken out, and so is the turnover of any period for which you claim no refund.

Time limit

Two years from the relevant date (Explanation (2) to Section 54 of the CGST Act)

For goods by sea or air, the relevant date is the date the conveyance departs. For services, it is the date of receipt of payment in convertible foreign exchange, or the date of issue of invoice if payment was received in advance.

Minimum refund limit

No refund is paid if the amount is less than ₹1,000. This limit does not apply to refund of tax paid on zero-rated supplies of goods or services or both, or on inputs or input services used in making such zero-rated supplies.

Under Section 54(14) of the CGST Act, both the refund of IGST paid on exports and the refund of unutilised ITC on exports are exempt from the ₹1,000 limit.

How to solve Refund of IGST Paid on Exports and Unutilised ITC questions

1. 1Identify the route. Check whether the exporter paid IGST or exported under bond or LUT without paying IGST. This decides what can be refunded.
2. 2If IGST was paid, state that the refund is of the IGST paid. For goods, the shipping bill acts as the application once GSTR-1 and GSTR-3B are filed. For services, FORM GST RFD-01 is filed.
3. 3If exported under LUT, list the figures: zero-rated turnover of goods and services, net ITC on inputs and input services, and domestic taxable and exempt turnover.
4. 4Fix the zero-rated turnover of goods (this applies to goods only). Take the lower of the FOB value declared in the shipping bill/bill of export and the value declared in the tax invoice. Do not apply any 1.5 times cap.
5. 5Compute Adjusted Total Turnover. Add zero-rated turnover and taxable domestic turnover. Exclude exempt supplies. Take Net ITC as ITC on inputs and input services only. Capital goods ITC is not part of inputs and input services, so it is not in Net ITC.
6. 6Apply the Rule 89(4) formula. Subtract tax payable on zero-rated services, if any. Then cap the answer at the balance in the electronic credit ledger.
7. 7Check the bars and limits: two-year time limit and no double claim on the same supply. The ₹1,000 minimum under Section 54(14) does not apply to refund of tax paid on zero-rated supplies or on inputs or input services used for them. So it does not bar an export refund of IGST paid or of unutilised ITC.
8. 8Write the conclusion in provision-facts-conclusion form with the final refund amount.

Quickest way: Three-line check for LUT refund problems

Common mistakes in Refund of IGST Paid on Exports and Unutilised ITC

• Including ITC on capital goods in Net ITC.

  Students treat all ITC as one pool.

  Fix: In Rule 89(4), Net ITC means ITC availed on inputs and input services during the relevant period, other than ITC for which refund is claimed under sub-rule (4A) or (4B). Capital goods ITC is not within inputs and input services, so keep it out of Net ITC.

• Including exempt supplies in Adjusted Total Turnover.

  Students add up all turnover shown in the question.

  Fix: Exclude exempt supplies other than zero-rated supplies. Add only zero-rated and taxable domestic turnover.

• Claiming both IGST refund and unutilised ITC refund on the same export.

  Students see two refund routes and think both can be used together.

  Fix: The two routes are alternatives for a given supply. If IGST is paid and refunded, the ITC used to pay it cannot be refunded again.

• Using the wrong value as zero-rated turnover of goods, such as an invoice value that is higher than the FOB value, or applying an old 1.5 times cap.

  Students pick the invoice value by habit, or remember a cap that is no longer in the rule.

  Fix: For goods only, take the lower of the FOB value declared in the shipping bill/bill of export and the value declared in the tax invoice. Do not apply any 1.5 times cap.

• Forgetting to deduct tax payable on zero-rated services or to cap the refund at the ledger balance.

  Students stop once the main division is done.

  Fix: Always finish the formula with the deduction and then compare the answer with the balance in the electronic credit ledger.

• Applying the wrong relevant date or time limit.

  Students use the invoice date for everything.

  Fix: Use Explanation (2) to Section 54. For goods by sea or air, use the date the conveyance departs. For services, use the date of receipt of payment in convertible foreign exchange, or the date of issue of invoice if payment was received in advance. The limit is two years.

• Applying the ₹1,000 minimum refund limit to an export refund, whether of IGST paid or of unutilised ITC.

  Students remember the general rule in Section 54(14) but forget its exception for zero-rated supplies.

  Fix: Section 54(14) does not apply to refund of tax paid on zero-rated supplies of goods or services or both, or on inputs or input services used in making such supplies. Both the IGST refund and the unutilised-ITC refund on exports are exempt from the ₹1,000 limit.

Worked examples