Refund of ITC stuck because we export: how to claim it

Your company exports. You ship goods or bill clients abroad, and you do not charge IGST on those sales, because you export under a Letter of Undertaking. But you still pay GST on what you buy: software, rent, freight, raw material, professional fees. That tax sits in your electronic credit ledger as input tax credit. It is the GST you paid on purchases, which you can set off against GST you owe on sales.

Here is the problem. You have almost no output tax to set it off against, so the balance grows every month and cash is locked up.

The law has an answer: a refund of the unutilised credit, in cash. This article explains the claim. It does not repeat how to export under a Letter of Undertaking; see our article on exporting services under an LUT.

Why you are allowed to claim

A registered person may claim a refund of any unutilised input tax credit at the end of any tax period (s.54(3), Central Goods and Services Tax Act 2017). A "tax period" is the period for which you file a return, usually a month.

The law limits this. No refund of unutilised credit is allowed except for zero rated supplies made without payment of tax, and for credit built up because input tax rates are higher than output rates (inverted duty, a different claim not covered here) (first proviso, s.54(3), CGST Act).

Exports of goods or services are "zero rated supply" (s.16(1)(a), Integrated Goods and Services Tax Act 2017). A registered person making zero rated supply is eligible to claim refund of unutilised input tax credit when the supply is made without payment of integrated tax, under bond or Letter of Undertaking (s.16(3), IGST Act). The claim runs through section 54 of the CGST Act and its rules.

Two refund routes: do not mix them up

If you export without paying IGST, you claim unutilised credit. This article covers that route. If you pay IGST on exported goods, you claim back the IGST instead (rule 96, CGST Rules 2017), and that claim does not go through Form GST RFD-01 (rule 89(1)). Use one route for a given export: no refund of input tax credit is allowed if the supplier avails drawback of central tax or claims refund of the integrated tax paid on those supplies (second proviso, s.54(3), CGST Act).

The deadline clock

You must apply before the expiry of two years from the "relevant date" (s.54(1), CGST Act). The relevant date depends on what you exported (Explanation (2) to s.54, CGST Act).

For goods exported by sea or air, it is the date the ship or aircraft leaves India. For goods exported by land, it is the date the goods pass the frontier. For goods sent by post, it is the date the Post Office despatches them to a place outside India (Explanation (2)(a), s.54).

For services, it is the date you receive payment in convertible foreign exchange (or Indian rupees where the Reserve Bank of India permits), where the service was completed before payment. If payment came in advance, it is the date you issue the invoice (Explanation (2)(c), s.54).

The clock runs per export event. Keep a date for each shipping bill or foreign receipt.

If the officer finds your application incomplete, the time between filing Form GST RFD-01 and the deficiency notice in Form GST RFD-03 is excluded from the two years when you refile (proviso to rule 90(3), CGST Rules 2017). Do not plan around that. File early.

What the refund actually covers: the formula

You do not get back all the credit in your ledger. The law caps it with a formula (rule 89(4), CGST Rules 2017):

Refund Amount = (Turnover of zero-rated supply of goods + Turnover of zero-rated supply of services) x Net ITC ÷ Adjusted Total Turnover

The parts, in the rule's terms:

Refund amount is the maximum refund that is admissible.
Net ITC is the input tax credit availed on inputs and input services during the relevant period.
Relevant period is the period for which the claim has been filed.
Turnover of zero-rated supply of goods is the value of zero-rated goods supplied without payment of tax under bond or Letter of Undertaking, or 1.5 times the value of like goods supplied domestically by the same or a similarly placed supplier, whichever is less.
Turnover of zero-rated supply of services is calculated from payments received during the relevant period for zero-rated services. It includes services completed for which payment came in advance earlier, and it reduces advances for services not yet completed.
Adjusted Total Turnover is the turnover in the State or Union territory, excluding the turnover of services, plus the turnover of zero-rated services and non-zero-rated services, excluding exempt supplies other than zero-rated supplies.

For goods, the value of exports is the lower of the Free on Board value in the shipping bill or bill of export, and the value in the tax invoice or bill of supply (Explanation to rule 89(4)).

Illustration only: say in the relevant period your zero-rated turnover is ₹60 lakh, your adjusted total turnover is ₹1 crore, and your net input tax credit is ₹10 lakh. The maximum refund is (₹60 lakh ÷ ₹1 crore) x ₹10 lakh, which is 0.6 x ₹10 lakh = ₹6 lakh. The remaining ₹4 lakh of credit stays in your ledger.

The step-by-step claim

Step 1. Check the returns are filed. The officer may withhold a refund if you defaulted in any return, or owe tax, interest or penalty not stayed by a court or Tribunal by the specified date, meaning the last date for filing an appeal (s.54(10) and Explanation, CGST Act). Unpaid dues can be deducted from the refund. Clear them first.

Step 2. Gather the statements. Rule 89(2) lists what must go with the application. For an export of goods, it is a statement with the number and date of shipping bills or bills of export and the number and date of the export invoices (rule 89(2)(b)). For an export of services, it is a statement with the number and date of invoices and the relevant Bank Realisation Certificates or Foreign Inward Remittance Certificates (rule 89(2)(c)). A Bank Realisation Certificate or Foreign Inward Remittance Certificate is the bank's proof that the foreign money came in.

Step 3. Declarations. A declaration that you did not pass the tax burden to anyone else, or a Chartered Accountant or Cost Accountant certificate where the claim is above ₹2 lakh, is not required for refunds covered by clause (a), (b), (c), (d) or (f) of s.54(8) (provisos to rule 89(2)(l) and (m)). Refund of tax on exports and of unutilised credit under s.54(3) sit in clauses (a) and (b) of s.54(8). So an exporter claiming unutilised credit does not need that certificate.

Step 4. File Form GST RFD-01 on the common portal. You file electronically, directly or through a Facilitation Centre notified by the Commissioner (rule 89(1), CGST Rules 2017). The rule is "subject to the provisions of rule 10B", so ask your CA whether rule 10B applies to you.

Step 5. The ledger is debited. When the application relates to refund of input tax credit, you debit the electronic credit ledger by the amount of refund you claim (rule 89(3)).

Step 6. Wait for the acknowledgement. The officer must scrutinise your application for completeness within fifteen days of filing. If it is complete, Form GST RFD-02 is made available to you, showing the date of filing. The sixty-day clock for the final order counts from that date (rule 90(2) and s.54(7), CGST Act).

If the officer finds deficiencies, you get Form GST RFD-03 and must refile after rectifying them (rule 90(3)). The amount debited is re-credited (rule 93(1)). You can withdraw an application before any sanction order by filing Form GST RFD-01W, and the debit is credited back (rule 90(5) and (6)).

When the money comes

Provisional refund of 90%. For claims on zero-rated supply of goods or services, the officer may refund ninety per cent of the total amount claimed on a provisional basis, subject to the prescribed conditions. The final order follows after verification (s.54(6), CGST Act). The provisional refund is granted on the condition that, in the five years before the tax period of the claim, you have not been prosecuted for an offence where tax evaded exceeds two hundred and fifty lakh rupees, that is ₹2.5 crore (rule 91(1), CGST Rules 2017).

The officer makes an order in Form GST RFD-04 within seven days from the acknowledgement, on the basis of the system's risk identification. For reasons recorded in writing, the officer may skip the provisional refund and go to the final order (rule 91(2), as it reads from 1 October 2025 under Notification No. 13/2025-Central Tax).

Final order. The proper officer must issue the order within sixty days from the date of receipt of an application complete in all respects (s.54(7), CGST Act).

Interest on delay. If the refund ordered is not paid within sixty days from the date of receipt of the application, interest is payable for the period of delay beyond sixty days, at a rate not exceeding six per cent as notified (s.56, CGST Act). The exact rate is notified from time to time, so check the current figure on the GST portal.

The bank account. The refund goes to an account in the applicant's name, obtained on its PAN (rule 96C, CGST Rules 2017).

If the officer does not agree

If the officer thinks all or part of your claim is not admissible, you get a notice in Form GST RFD-08. You must reply in Form GST RFD-09 within fifteen days of receiving it. No application can be rejected without giving you a chance to be heard (rule 92(3), CGST Rules 2017).

What not to do

Do not claim after two years. The two-year limit in s.54(1) runs from the relevant date. A claim filed after it is out of time.
Do not claim on goods that carry export duty. No refund of unutilised credit on zero-rated supply of goods, or of IGST paid on it, is allowed where the goods are subject to export duty (s.54(15), CGST Act). This applies from 1 November 2024 (Finance (No. 2) Act 2024, Notification No. 17/2024-Central Tax dated 27.09.2024).
Do not forget the foreign money. If sale proceeds of exported goods are not realised within the period allowed under the Foreign Exchange Management Act 1999, you must deposit the refund, with interest under section 50, within thirty days of the expiry of that period. If you do not, the amount is recovered under section 73, 74 or 74A as an erroneous refund (rule 96B(1), CGST Rules 2017).
Do not claim under both routes. Pay IGST and claim it back, or export under a Letter of Undertaking and claim credit. Not both for the same export.

What to do now

Next step: list every export (shipping bill or foreign receipt) with its relevant date, and compute the maximum refund under rule 89(4) for the period you want to claim.
Deadline: apply within two years from the relevant date of each export (s.54(1) and Explanation (2), CGST Act).
Consequence of delay: the claim lapses after two years. If you file and the officer responds with deficiencies, you must refile (rule 90(3), CGST Rules 2017).

Have a CA review your facts before you act or file.

FAQs

1. Can I claim the refund every month?
The law allows a claim for unutilised credit at the end of any tax period (s.54(3), CGST Act). The two-year clock runs from the relevant date. Each export must still be inside its own two years.

2. Do I need a CA certificate for the refund?
Not for refunds covered by clause (a), (b), (c), (d) or (f) of s.54(8), which include export refunds and refund of unutilised credit under s.54(3) (provisos to rule 89(2)(l) and (m), CGST Rules 2017). The certificate is required in other cases where the claim is above ₹2 lakh.

3. How long will the refund take?
The officer must issue the order within sixty days from receipt of a complete application (s.54(7), CGST Act). Ninety per cent can come earlier on a provisional basis (s.54(6)).

4. What if the officer withholds my refund?
The officer can withhold it if you defaulted in returns or have unpaid tax, interest or penalty (s.54(10), CGST Act). It can also be withheld where an appeal or other proceedings are pending and the Commissioner thinks release would hurt the revenue because of malfeasance or fraud, after hearing you (s.54(11)). You are entitled to interest at a notified rate not exceeding six per cent if you later win (s.54(12)).

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