Guidelines for Refunds of Unutilized Input Tax Credit

The Ministry of Finance and GST Council has provided a detailed guidelines and order through which the applicants can claim a refund of unutilized Input Tax Credit. This notification came soon after the ministry grants partial ITC Refund on Export to the exporters. A summarization of the guidelines is as followed-

  • The applicants claiming a refund on the unutilized Input Tax Credit are required to upload a copy of the Form GSTR-2A for such a claim. The concerned officer, with whom the refund application is made, checks the Form GSTR-2A and relies on it as evidence for the supplies made by the supplier and the Input Tax Credit availed on such supplies by the claimant. Also, the details of the relevant invoices must also be furnished along with the GST Refund application. In order to enable the proper officer to determine the refund application, the applicant has to declare the ITC eligibility on the furnished invoices. Along with the Form GST RFD 01, the applicant has to furnish copies of invoices self-certified by them and which they haven’t populated in the Form GSTR-2A. Also, the concerned officer does not insist the claimant on submitting those invoices, for which the details have already being furnished in Form GSTR-2A.
  • The common portal calculates the amount to be refunded during GST Refund Service, as the least of the below mentioned amounts-
  • As per the formula given in Rule 89(4) or Rule 89(5) of the CGST Rules, the maximum amount calculated for making refund. The prescribed formula is applied on the Input Tax Credit amount that is consolidated. The formula calculates the Central Tax + State Tax or Union Territory Tax + Integrated Tax.
  • The balance in the applicant’s electronic credit ledger during the refund application filing.
  • The balance in the applicant’s electronic credit ledger at the end of the term period of tax for which he/ she has claimed a refund for through Form GSTR-3B for that particular period.

After the refund amount calculations from the least of the three amounts, it has to be debited from the applicant’s electronic credit ledger in the provided order-

  • To the extent of the available balance, the integrated tax.
  • Equal to the extent of available balance in the electronic credit ledger, the Central Tax and State Tax or Union Tax is to be debited.
  • In case the available balance is at shortfall in the applicant’s electronic credit ledger, the differentiated amount of Input Tax Credit is to be debited from some other electronic credit ledger.
  • The order for getting debit of amount as refund for unutilized Input Tax Credit is not yet available online or on the common portal. This facility will be made online for the taxpayers very soon. But till that time the taxpayers are advised by the department to follow the above discussed order while making application for GST refund. The taxation department and the authorities do not take an adverse view of the application if it is not filed strictly adhering to the given order, by the applicant.
  • When compensation cess on refund of unutilized Input Tax Credit has been claimed in the refund application, then such a refundable amount is calculated separately. Also, the calculated amount is debited entirely from the compensation cess balance available in the electronic credit ledger.
  • Section 54(3) of the CGST Act, 2017 states that-

“Subject to the provisions of sub-section (10), a registered person may claim refund of any unutilised input tax credit at the end of any tax period: Provided that no refund of unutilised input tax credit shall be allowed in cases other than–

  • zero rated supplies made without payment of tax;
  • where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies (other than nil rated or fully exempt supplies), except supplies of goods or services or both as may be notified by the Government on the recommendations of the Council:

Provided further that no refund of unutilised input tax credit shall be allowed in cases where the goods exported out of India are subjected to export duty:

Provided also, that no refund of input tax credit shall be allowed, if the supplier of goods or services or both avails the drawback in respect of central tax or claims refund of the integrated tax paid on such supplies.”

  • The above stated section clearly states that a supplier is eligible to claim refund of the unutilized Input Tax Credit on the Central Tax or State Tax or Union Territory Tax or Integrated Tax or the Compensation cess, when they have availed a drawback of the rebated duties under the Customs and Central Excise Duties Drawback Rules, 2017.
Author: Anil Agrawal
EZYBIZ India Consulting LLP, New Delhi. The firm is business and tax consultancy firm providing consultancy in Taxation, Regulatory, Transfer pricing, Valuation, Corporate funding and Business set up matters. He may be reached at 9899217778 or