GST refund on exports: the two routes, and which suits you

Section 16 of the Integrated Goods and Services Tax Act, 2017 makes an export a zero rated supply, and everything else follows from how the zero is delivered. Either the tax is never charged and the accumulated input credit is refunded, or the tax is charged, paid and then refunded. Both end at zero. They get there through different portals, on different timelines, with different documents, and they break in ways that have almost nothing in common.

What are the two routes, and where do they come from?

Until 30-09-2023 both sat inside one sub-section. Section 16(3) of the Integrated Goods and Services Tax Act as it then stood gave a registered person making a zero rated supply two options: supply under bond or letter of undertaking without payment of integrated tax and claim refund of unutilised input tax credit, or supply on payment of integrated tax and claim refund of the tax so paid. That text was substituted by section 123(b) of the Finance Act, 2021, brought into force with effect from 01-10-2023 by Notification No. 27/2023-Central Tax dated 31-07-2023.

What replaced it is asymmetric, and the asymmetry is worth knowing. Section 16(3) now carries only the letter of undertaking route as a general entitlement. The payment route moved to section 16(4), which empowers the Government, on the recommendation of the Council, to notify by notification a class of persons who may make a zero rated supply on payment of integrated tax and claim refund of the tax so paid, and, by a clause inserted by section 153 of the Finance (No. 2) Act, 2024 dated 16-08-2024, a class of goods or services on which a supplier may do the same. Route two is now a notified permission rather than a standing option.

Which route moves money faster?

Route two, structurally, and by some distance. Rule 96(1) of the CGST Rules provides that the shipping bill filed by an exporter of goods shall be deemed to be an application for refund of integrated tax, deemed filed once the departure or export manifest is filed and a valid FORM GSTR-3B has been furnished. ICEGATE's own IGST refund guidance puts the same point in one line: no separate refund application is needed, because the shipping bill is automatically treated as one. Nothing is drafted, nothing is uploaded, and no officer allocation happens.

Route one is an application in every sense. Rule 89(1) requires an application in FORM GST RFD-01 through the common portal, and rule 89(3) requires the electronic credit ledger to be debited by the amount claimed at the point of filing, so the credit leaves before the money arrives. CBIC Circular No. 125/44/2019-GST dated 18-11-2019 records that on generation of the application reference number the claim is transferred to the jurisdictional proper officer, who has fifteen days to issue either an acknowledgement or a deficiency memo. The tax leaves the ledger on day one either way.

Which route costs more paperwork?

Route one, again by a wide margin, and this is where most of the operational difference lives. The document schedule in CBIC Circular No. 125/44/2019-GST for a refund of unutilised input tax credit on exports without payment of tax runs to a declaration under the second and third provisos to section 54(3), an undertaking in relation to sections 16(2)(c) and 42(2), a statement of invoices, Statement 3 under rule 89(2)(b) and (c), Statement 3A under rule 89(4), a copy of FORM GSTR-2A for the period, and self-certified copies of invoices whose details are not found in it.

Route two asks for none of that on goods, because there is no application to attach anything to. The counterweight is that route one's refund amount is computed rather than observed. Rule 89(4) sets the formula as turnover of zero-rated supply of goods plus turnover of zero-rated supply of services, multiplied by net input tax credit, divided by adjusted total turnover, and its Explanation provides that the value of goods exported is the free on board value declared in the Shipping Bill or Bill of Export under the Shipping Bill and Bill of Export (Forms) Regulations, 2017, or the value declared in the tax invoice or bill of supply, whichever is less.

How does each route fail?

Differently enough that the failure mode should probably decide the choice. Route two fails silently and mechanically, as a mismatch between the shipping bill and the return, and it announces itself only as a validation code against a shipping bill. Nobody writes to you. Export refund error codes works through each of those codes, and the proviso to rule 96(1) is why they matter beyond the delay: a mismatch means the refund application is deemed filed on the date the exporter rectifies it, not on the date of export.

Route one fails as correspondence. A deficiency memo restarts the application, and paragraph 12 of Circular No. 125/44/2019-GST records that a refund application submitted after correction of deficiencies is treated as a fresh application, which must still be submitted within two years of the relevant date as defined in the explanation after section 54(14) of the CGST Act. A route two failure costs weeks and a rectification. A route one failure late in the two year window can cost the claim outright.

What does non-realisation do to each route?

This is the asymmetry nobody expects. For route two on goods, realisation is not a condition of the refund at all: paragraph 48 of Circular No. 125/44/2019-GST clarifies that realisation of consideration is one of the conditions for export of services but is not a pre-condition for export of goods, and that insistence on proof of realisation for processing refund claims related to export of goods was not envisaged. The refund follows the shipment, not the money.

Route one carries an explicit clawback. The proviso to section 16(3) of the Integrated Goods and Services Tax Act provides that a registered person making a zero rated supply of goods shall, in case of non-realisation of sale proceeds, be liable to deposit the refund so received under that sub-section along with applicable interest under section 50 of the CGST Act within thirty days after the expiry of the time limit prescribed under the Foreign Exchange Management Act, 1999 for receipt of foreign exchange remittances. That time limit is itself moving: the realisation clock changes on 01-10-2026. The realisation deadline calculator takes a shipping bill date and returns the window it falls under.

What changed for the payment route on 08-10-2024?

A restriction came off. Rule 96 of the CGST Rules formerly carried a sub-rule (10) barring the with-payment refund to persons who had received supplies on which the supplier had availed the benefit of specified concessional notifications, which in practice excluded a broad class of exporters using advance authorisation and export oriented unit benefits. The CBIC tax information portal records that sub-rule (10) was omitted by Notification No. 20/2024-Central Tax dated 08-10-2024, and rule 96 now ends at sub-rule (9).

An exporter who was told years ago that route two was closed to them should therefore check the position again rather than inherit the answer. Two other conditions remain in place and are easy to miss. Section 16(5) of the Integrated Goods and Services Tax Act, inserted by the Finance (No. 2) Act, 2024, denies refund on either route where the zero rated supply of goods is subjected to export duty. And the third proviso to section 54(3) of the CGST Act, discussed at paragraph 40 of Circular No. 125/44/2019-GST, bars a refund of input tax credit where drawback in respect of central tax has been availed.

So which route suits whom?

Route two suits an exporter with a substantial domestic output liability, because the integrated tax on exports is paid out of a credit balance that was going to be consumed anyway, and the shipping bill then does the claiming without a single document being prepared. It also suits any exporter whose administrative capacity is thin, since the work is field discipline in one return rather than a monthly application cycle.

Route one suits an exporter who exports almost everything they make, because there is no domestic liability for the accumulated credit to be set against, so the credit would simply pile up. It also suits anyone supplying services, where route two is not a shipping bill matter at all: rule 96(9) provides that a refund of integrated tax paid on services exported out of India is applied for in FORM GST RFD-01 and dealt with under rule 89. And where an exporter uses route one, rule 96A obliges them to furnish a bond or letter of undertaking in FORM GST RFD-11 before export, and to pay the tax with interest within fifteen days after three months from the date of the export invoice if the goods do not actually leave. Exporting under a letter of undertaking, and its window covers that undertaking and the window it opens.

Where to go from here

Whichever route you are on, the money moves only when a small set of fields agrees across the return and the shipping bill.

• How route two fails in practice. Export refund error codes takes each validation code apart and names who has to move.
• The fields both routes depend on. Table 6A of GSTR-1 sets out what must match your shipping bill, and what happens when it does not.
• The clawback on the letter of undertaking route. The realisation clock changes on 01-10-2026, and the section 16(3) proviso counts thirty days from the end of that window.
• Why the fields diverged at all. One invoice value, thirteen assertions traces one number through every system that asks for it.

Purser holds the shipment record both routes are fed from, so the invoice, the shipping bill data and the values that reach the return come from one place rather than three. Purser never submits to a government portal, never files a return and never sends an outbound message without a recorded human approval event, so the route choice, the letter of undertaking and the filing all stay exactly where they are today. What changes is that the numbers agreed before they were split across two systems. Purser Outbound is where they are held.

Frequently asked questions

What are the two GST refund routes on exports?

Either export without paying integrated tax under a bond or letter of undertaking and claim a refund of unutilised input tax credit, or export on payment of integrated tax and claim a refund of the tax paid. Section 16(3) of the Integrated Goods and Services Tax Act now carries the first as the general entitlement, and section 16(4) empowers the Government to notify the class of persons and goods who may use the second.

Which export refund route is faster?

The payment route, structurally. Rule 96(1) of the CGST Rules provides that the shipping bill is deemed to be the application for refund of integrated tax, so nothing is drafted or uploaded, whereas the letter of undertaking route requires an application in FORM GST RFD-01 under rule 89(1), debits the electronic credit ledger at filing under rule 89(3), and is allocated to a jurisdictional officer who may issue a deficiency memo.

Do I need proof of realisation to claim a GST refund on exported goods?

Not for the refund itself on goods. Paragraph 48 of CBIC Circular No. 125/44/2019-GST dated 18-11-2019 clarifies that realisation of consideration is a condition for export of services but not a pre-condition for export of goods. The proviso to section 16(3) of the Integrated Goods and Services Tax Act separately requires a refund of unutilised credit to be deposited with interest if the proceeds are not realised within the period allowed under the Foreign Exchange Management Act, 1999.

Was the with-payment refund route restricted for advance authorisation holders?

Rule 96 of the CGST Rules formerly carried a sub-rule (10) that barred the with-payment refund to persons who had received supplies on which the supplier availed specified concessional notifications. The CBIC tax information portal records that sub-rule (10) was omitted by Notification No. 20/2024-Central Tax dated 08-10-2024, so an exporter told years ago that the route was closed to them should re-check the position rather than assume it.

How is the refund amount computed on the letter of undertaking route?

By formula rather than by observation. Rule 89(4) of the CGST Rules sets it as turnover of zero-rated supply of goods plus turnover of zero-rated supply of services, multiplied by net input tax credit, divided by adjusted total turnover. Its Explanation provides that the value of goods exported is the free on board value declared in the Shipping Bill or Bill of Export, or the value declared in the tax invoice or bill of supply, whichever is less.