How to do GST payments and refund policy

We are all well aware that GST has brought India under a ‘one tax regime’ since it came into effect on 1st July 2017. The introduction of GST has made life easy and simple for manufacturers, traders, exporters, and others to a great extent.

GST is all about a smooth flow of funds and compliances from the start till the end. To facilitate such a smooth flow, the government has to provide for a hassle-free refund process. GST provides for a clearer and a transparent invoice based tracking system. This aims at streamlining and standardizing the procedures relating to refunds and payments. One can proceed with making claims online in a timely manner. In this blog, we shall discuss the GST payments and refunds.

Many of us will be confused like what are the payments to be made under GST?

For your kind information, under GST the tax to be paid can be classified into 3 types, namely;

  • IGST- To be paid when inter-state supply is made. The tax is paid to the center.
  • CGST- To be paid when making supply within the state. In this case, the tax is again paid to the center.
  • SGST- To be paid when making supply within the state. Here the payment of the tax will be made to the state. The same is given by an example in the table below:
Goods sold from Bengaluru to MumbaiYesNoNo
Goods sold from Bengaluru to MysoreNoYesYes
Goods sold within BengaluruNoYesYes


How to calculate the GST payment to be made?

Usually, the Input Tax Credit (ITC) has to be deducted from Outward Tax Liability to arrive at the total GST payment to be made.

Tax Deducted at Source (TDS) will be deducted from the total GST to calculate the net payable amount. Interest and late fee (if any) will be added to arrive at the final amount. Also, one cannot claim on interest and late fees for Input Tax Credit (ITC). Though ITC can be made online, however interest and late fees are to be paid by cash.

For regular dealer:

A regular dealer is liable to pay GST on the outward supplies made. They can claim for ITC on the purchases made by him/ her.

Outward Tax Liability – Input Tax Credit = Net GST Payable

For composition dealer:

It is comparatively easier for a composition dealer to make the payment for GST. A dealer who has opted for this scheme has to pay a fixed percentage of GST on the total outward supplies made.

One question that strikes our mind is when should GST payment be made?

A GST payment is to be made when the GSTR 3 is filed by 20th of every month.

The next question that arises is how to make GST payments?

GST payments can be made in 2 ways;

  1. Payment through Credit Ledger
  2. Payment through Cash Ledger

In the former case, the credit of input tax credit can be taken by the dealers for payment of GST. The credit can be taken only for tax payment. One cannot pay interest, late fees, and penalty.

In the latter case, the dealer has an option to make the GST payment through online or offline mode. The challan has to be generated on the GST portal.

One thing to keep in mind. Where the tax liability is more than Rs. 10,000/-, it is mandatory to pay tax online.

In the first half, we have learned about the GST payment. Now let us go through the GST refund.

The situation for claiming GST refund arises usually when the GST paid is more than the GST liability. The entire process is online and a time limit has been set to claim the refund.

Mistakes can happen when filling the GST challan for making GST payment. One may end up paying an excess GST due amount. This excess amount is shown as a balance in the Electronic Cash Ledger. The balance can be claimed as a refund by submitting an application in form RFD-01. The same can be done online on the GST portal.

There are many instances where GST refund can be claimed. Excess tax is paid either due to mistake or by omission. Here are some of them;

  • Dealer export goods/ services under the claim of rebate or refund.
  • Accumulation of input tax credit due to output being tax exempted.
  • Any refund on tax paid on purchases made by Embassies or UN bodies.
  • International tourists who have paid GST are subject to refund.
  • Excessive payment of tax due to a careless mistake.
  • A refund may arise after a provisional assessment.
  • Suppliers receiving discounts or credits through the issuance of credit notes.

Now let us take a simple example of excess tax paid.

Let’s say Mr. Z has a tax liability of Rs. 20,000/- for the month of October. But due to mistake or negligence, Mr. Z made a GST payment of Rs. 2 lakh. Now, in this case, Mr Z has made an excess GST payment of Rs. 1.8 lakh which can be claimed as a refund. The time limit for claiming the refund is 2 years from the date of payment. Also if the refund is paid with a delay, then an interest of 24% p.a. is payable by the government.

List of important forms for GST refunds:

  • Form RFD-1 For refund application
  • Form RFD-2 An Acknowledgement for future reference
  • Form RFD-3 For any deficiencies in refund application and for any corrections
  • Form RFD-4 For provisional refunds
  • Form RFD-5 Issue of final order when refunds are true and correct
  • Form RFD-7 Show cause notice for rejection of a refund application
  • Form RFD-8 Payment advice
  • Form RFD -9 For delayed payments

Availing a GST refund can become very smooth and a hassle-free process when followed in a systematic manner. It will change the course of the refund process and gives a much needed boost to the manufacturing or export industry in particular. You know what those refunds which usually took years to pass can now be taken in just 60 days. Yes, you heard it right.

One Step Ahead…

Does this whole process sound complicated? Small establishments may feel the burden when complying with GST norms. With Aavana, you can not only create GST invoices but also can file GST returns and GST registrations in Bangalore.

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