GST Refunds & LUT

What are GST refunds and the LUT?

Exports and supplies to SEZs are 'zero-rated' under GST: they shouldn't carry Indian tax. An exporter can either export without paying IGST under a Letter of Undertaking (LUT) and claim a refund of the unused input tax credit, or pay IGST and claim a refund of it.

Refunds also arise in other situations — an inverted duty structure where inputs are taxed higher than outputs, excess tax paid by mistake, or tax paid on a supply that didn't happen. Each type has its own conditions, documents, and time limit.

The key terms

The main refund routes and terms:

Zero-rated supplies

Exports of goods and services, and supplies to SEZ units and developers, on which no Indian GST should ultimately be borne.

LUT (RFD-11)

A Letter of Undertaking filed online each financial year, letting you export without paying IGST.

Refund of unused credit

Exporters under LUT claim a refund of the input tax credit used for zero-rated supplies.

Refund of IGST paid

Exporters of goods who pay IGST generally get it refunded through the customs system when the shipping bill and returns match.

Inverted duty structure

Where the tax rate on inputs is higher than on outputs, the accumulated credit can be refunded, subject to a formula and exclusions.

RFD-01

The refund application, generally filed within two years of the relevant date.

Provisional refund

For zero-rated supplies, most of the claim can be released provisionally, subject to conditions.

Why it matters

For exporters especially, refunds are working capital:

Cash tied up

Unrefunded credit is money locked up with the government.

Time limits

Refunds must generally be claimed within two years of the relevant date, or they're lost.

LUT must be in place

Exporting without IGST and without a valid LUT can lead to tax demands with interest.

Documentation

Refunds are refused or reduced when invoices, shipping bills, or remittance proofs don't match.

Foreign exchange realisation

Export of services must meet the conditions, including receiving payment in convertible foreign exchange where required.

Inverted duty formula

The inverted duty refund formula excludes some credits, so claims need careful computation.

Deficiency memos

Incomplete applications draw deficiency memos, restarting the clock.

Who is this for?

Whether a service counts as an export depends on conditions like the recipient being outside India and payment in foreign exchange. Intermediary services have particular rules.

Exporting under LUT vs. paying IGST

Two routes for zero-rated supplies:

What we'll need from you

LUT

The LUT for the year, or we'll file it.

Export invoices

Invoices for the refund period.

Shipping bills or remittance proof

Shipping bills for goods, or foreign inward remittance certificates or bank realisation for services.

GST returns

GSTR-1 and GSTR-3B for the period, with exports reported correctly.

Credit records

Purchase invoices and GSTR-2B for the credit claimed.

Bank account

A validated bank account in the business's name.

Fees depend on the refund type and frequency of claims.

How we claim refunds

A typical credit refund for exporters:

1. 1

   File the LUT

   The LUT is filed at the start of each financial year.

2. 2

   Report exports correctly

   Exports are reported in GSTR-1 and GSTR-3B as zero-rated, without tax.

3. 3

   Compute the refund

   The refundable credit is computed using the prescribed formula.

4. 4

   Prepare documents

   Invoices, shipping bills or remittance proof, and statements are compiled.

5. 5

   File RFD-01

   The refund application is filed online within the time limit.

6. 6

   Follow up

   Deficiency memos and queries are answered, and the refund tracked to receipt.

Keeping refunds flowing

A few habits keep refunds regular:

Renew the LUT

File a new LUT every financial year before the first export.

Claim regularly

Claim monthly or quarterly rather than letting credit build up.

Match documents

Make sure invoice, return, and shipping or remittance details match exactly.

Track the two-year limit

Never let a period approach the time limit unclaimed.

Respond quickly

Answer deficiency memos and show-cause notices promptly.

Appeal rejections

Refund rejections can be appealed within the time allowed.

Benefits and responsibilities