What GST Can You Claim Back?
The history of taxation goes back centuries to the times of the Greeks and Romans. Taxes were levied on nationals and also people from the conquered territories. Ancient India too had their taxation structure. The type of taxation varied with each Kingdom and every king had put in their tax structure in place. However, the system of taxation and implementation of the same has always been controversial.
It was only in the 20th Century that the taxation structure globally began to take shape and culminated to form the modern taxation structure. The first country to conceptualize and adopt the Goods and Services Tax or GST was France in the 1950s.
In some countries, the GST is also known as Value-Added Tax or VAT. Except for 10%, the rest of the world has adopted either GST or VAT. One noteworthy & very surprising thing is that the USA has still not implemented the GST. Due to the federal nature of the United States constitution, the states set their taxes for their governance.
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India started its GST journey in the year 2000, and it took 17 years to be finally realized on 1st July 2017, when The Goods and Services Tax Act was passed in the parliament. This was the biggest tax reform in Post Independent India and helped in cutting down the prevalent cascading effect of taxes.
This article aims to give an understanding of the following questions: What is GST? What is Input Tax Credit? & What GST Can You Claim Back?
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What is GST?
GST or the Goods and Services Tax can be defined as an Indirect Tax used in India on the supply of goods and services. It is a tax that has substituted many indirect taxes in India like Service tax, Excise duty, Value Added Tax – VAT, etc. It is a multi-stage and destination-based tax levied on every value addition.
Since the provisions of GST give tax benefits to every concerned party who has paid various taxes from the manufacturer to the retailer, the tax burden on the final consumer is reduced considerably. It is to be noted that GST does not include direct taxes like Income tax, Capital gain tax, and corporate tax.
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GST is divided into the following segments:
- Central Goods and Services Tax – CGST: Where tax is collected by the Centre on inter-state transactions
- State Goods Services and Tax – SGST: Where tax is collected by the state on the intra-state transactions
- Integrated Goods and Service Tax – IGST: Where tax is collected by the Central Government on inter-state supply of goods and services
- Union Territory Goods and Services Tax – UGST: Where tax is collected by the Union territory Government
The GST has been divided into four tax slabs rates of 5%, 12%, 18% & 28% respectively. There are however certain Goods and services which are exempted under GST.
The Central Government has set up a GST Council comprising 33 members. The function of this council is to modify, reconcile any regulation or law for goods and services tax in India.
In the earlier tax regime, there were various taxes like Excise duty, Service tax, Value added tax to be paid at every stage of the production process. Each party involved in the process had to pay non-refundable taxes. However, with the introduction of GST, there is a provision of claiming a refund in GST. The question is who can claim GST?
Unutilized input tax credit at the end of any tax period can be claimed as a refund by a registered person as laid down in Section 54(3) of the CGST Act, 2017. What is an Input tax credit? & What is a tax period?
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Input Tax Credit (ITC):
ITC means you can cut down the tax you have already paid on inputs, at the time of paying tax on output. For example, for a manufacturer, the tax payable on output (Finished Product) is Rs 650. The tax paid on input by him (Purchases of material) is Rs 400. He can claim an Input Credit of Rs 400 and he only needs to deposit Rs 250 in taxes.
So effectively any person registered under GST is eligible to claim Input Credit for tax paid on his purchases.
Tax Period: A tax period is a period for which a return is required to be furnished. Hence, a taxpayer can claim an unutilized ITC refund every month.
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The question here is What GST Can You Claim Back? Following are the scenarios leading to GST refund claim:
Export of Goods or services
As per provisions under IGST, the export of goods and services considered as zero-rated supply are exempted from GST and are eligible to claim the refund on GST Paid. What is a zero-rated supply? Zero-rated supply means that the recipient to whom the supply is made is entitled to pay 0% GST to the supplier. Deemed exports are also zero-rated supplies.
Zero-rated supply involves the following:-
- Payment of IGST
- Without Payment of IGST
- Under Bond
- Under LUT
Export with Payment of IGST – Exporters can claim the refund of IGST paid at the time of export. The GST refund process for exports in case of goods begins by taking reference to a primary document known as a shipping bill.
Export without payment of IGST – There is a different document involved in the GST process for a refund of exports. To export goods without payment of tax, there is an option of either using the cover of a Letter of Undertaking(LUT) or a bond. Any ITC unutilized and accumulated on inputs/input services will be available for refund in such a case.
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Supplies to SEZs units and developers
A registered dealer producing supplies as an export for goods or services, or supply to an SEZ is authorized to Zero Rated Supplies in GST. Since no tax is imposed on these supplies, these supplies can be called tax-free.
There is a provision in Section 16(3) of the IGST Act, 2017, which achieves the objective of zero-rating of exports and supplies to SEZ. According to the provision, a registered person who makes a zero-rated supply can claim a refund in accordance with the provisions of section 54 of the CGST Act, 2017, under the following options: –
- As the prescribed procedure and subject to such conditions and safeguards, he may under a Bond or Letter of Undertaking supply goods or services without payment of integrated tax (IGST) and claim a refund of the unutilized input tax credit of CGST, SGST, UGST, and IGST.
- As the prescribed procedure and subject to such conditions and safeguards, he may on payment of integrated tax and tax paid on both goods or services supplied claim a refund. The two such suppliers sub-categories are: –
- Exporter of goods.
- Exporters making supplies to SEZ.
- Deemed Export supplies
Goods for which payment is received in Indian Rupees and where the supply of such goods do not leave the country are treated as deemed exports.
For obtaining a refund of tax paid on such exports, the supplier or recipient is required to file application Form GST RFD – 01 with supporting documents.
Refund of taxes on purchases made by UN or embassies etc
Under Notification no. 16/2017- Central Tax dated June 28th, 2017, United Nations, Embassies, all UIN entities, & other foreign bodies have been given the privilege to claim a refund on GST paid by them. They have a UIN or Unique Identification Number. Their refund application forms are different and also their GST return forms are separate.
GST refund can be claimed on inward supplies received by specific foreign bodies and UN organizations who are exempted from taxes.
Organizations eligible to claim the refund of central tax paid on the inward supply of goods are as follows:-
- United Nations Organization (UNO)
- Any specified international organization
- Diplomatic Agents
- Foreign diplomatic mission
- Career consular officials
- Consular posted in India
5. Refund arising on account of any Court, or direction of the Appellate Authority, Appellate Tribunal, or due to order, decree, or judgment.
- As a consequence of order, judgment, or decree, or on the direction of a court, Appellate Tribunal, or an Appellate Authority.
- Tax paid for which invoice has not been issued and on a supply not provided either partially or wholly.
Reference number of the order towards the refund should also be provided, in cases where a claim of refund is on account of any judgment or order of court or appellate authority. A self-declaration by the applicant to the effect that the incidence of tax has not been passed to any other person, if the refund claim is less than Rs 2 Lakhs will be sufficient to process the refund.
Refund of ITC accumulated due to inverted duty structure
The term refers to a situation where the input GST rate is more than the output GST rate. In simple words, a taxpayer will end up paying more tax on purchases when compared with the tax on sales. Due to the inverted tax structure, the taxpayer becomes eligible for the refund of the accumulated input tax credit.
Finalization of provisional assessment
It might not be possible to determine the value of goods and services in certain exceptional scenarios. The Assistant & Deputy Commissioner of Central Tax in such cases provisionally determines the amount of tax payable by the supplier and is subject to final determination.
In the event of provisional assessment, the assessee is liable to pay the liability as determined under the Provisional assessment by the Commissioners.
On the final assessment, if the value of the final assessment is greater than the provisional assessment, the assessee needs to pay the differential amount along with interest. If the liability as per the provisional assessment is more than the final assessment then the assessee will be granted a refund along with interest at the prescribed rate.
Refund of pre-deposit
Any aggrieved taxpayer who wishes to contend against the order of GST Adjudicating Authority can file an appeal before the first appellate authority within three months of receiving the order.
Following payments to be made for acceptance of the appeal:-
- He admits being liable for part of the tax demanded in the order; and
- Rs 25 crores or 10% of the balance part of the tax demanded in the order as a pre-deposit amount, whichever is less
In case of dissatisfaction with the verdict passed by the first appellate authority, the taxpayer may approach the appellate tribunal as a next resort
- He admits being liable for part of the tax demanded in the order; and
- Rs 50 crores or 20% of the remaining tax demanded as a pre-deposit amount in the order, whichever is less. This will be in addition to the deposited amount before the first appellate authority.
If the aggrieved taxpayer is proven right through the proceedings, the pre-fixed deposit amount shall be returned.
Excess payment due to mistake
When the taxpayer has paid excess tax (as advance tax or tax deducted or collected at source or payment of tax on regular assessment or self-assessment), he can file a refund application for the excess payment. A refund can be claimed for the amount of Rs.1000 or more while filing a refund application using the ground as “Excess payment of Tax”.
Refund applicants can track the status of the refund application after filing the same, which shall be assigned to the Refund Processing Officer.
Refunds to tourists from foreign countries of GST paid on goods and commodities in India and carried abroad on departure from India
To overcome exporting its taxes, outbound passengers leaving India accompanied by GST-paid goods purchased during their stay in India on which IGST has been paid are entitled to claim the refund at the port-of-exit. All supplies to such an outbound tourist will always be treated as inter-State supplies.
A tourist, who claims IGST, should not normally be a resident in India and the maximum stay should not exceed six months. However, a foreign national who has come to India on a work permit and staying in India for a period exceeding six months will not be categorized as a tourist for claiming IGST and thus would not be eligible for a refund.
Refund towards Issuance of refund vouchers for taxes paid on advances against which goods, commodities, or services have not been supplied
Every business needs advances to safeguard its interest. The advance received gets adjusted with the final payment, future supplies, or even refunded. For any advances received, under the GST law, the time of supply is confirmed or set at the point when the advance is received. It is irrespective of whether the supply is made or not.
GST on the advance amount needs to be paid at the time at which the advance is received. This requires compliance with a few procedures, documentation, and reconciliation.
As per Section 31(3)(d), when a taxpayer accepts advance payment, he/she must issue a receipt voucher or any other document containing the prescribed particulars. The document is proof of such a payment receipt.
As per Section 31(3)(e), when a GST registered taxpayer has received advance payment and he has issued a receipt voucher promptly as per rules and there is no subsequent supply, refund vouchers for the advance payment to the person who made the payment can be issued by such taxpayers.
The taxpayer issuing a refund voucher can apply for a refund of GST paid on such advances, all supplies to such an outbound tourist will always be treated as inter-State supply.
Where CGST & SGST to be refunded as they have been paid as intra-state supply and subsequently held as inter-state supply and vice versa
One can claim a refund using the refund option as “Refund on tax paid on an intra-state supply which is subsequently held to be inter-state supply and vice versa” in cases where the refund is arising due to a change in location of supply of a particular transaction and the order is issued by the tax officer. After filing Form RFD-01, the refund applicant can track the status of the refund application.
Summing up, we hope we were able to clear most of your doubts regarding what GST can you claim back. If you want to add or ask anything, feel free to mention it in the comment section.