A service exporter supplying under LUT accumulates input tax credit it cannot use. Section 54(3) of the CGST Act allows a refund of that unutilised ITC, computed under Rule 89(4) as: Refund = (Turnover of zero-rated supply of services ÷ Adjusted total turnover) × Net ITC for the period. "Net ITC" is the input tax credit on inputs and input services availed in the period (capital goods are excluded); "turnover of zero-rated supply of services" is the payments received for exports completed in the period, adjusted for advances. The claim is filed in Form GST RFD-01 with Statement 3 and bank realisation evidence, within two years of the relevant date — for services, the date of receipt of foreign exchange where the service was completed before payment, or the invoice date where payment was received in advance. Ninety per cent may be sanctioned provisionally within seven days; the balance within sixty days.
Key facts
| Provision | Old reference (to 31 Mar 2026) | New reference (from 1 Apr 2026) | Rate / threshold | Timing | Form |
|---|---|---|---|---|---|
| Refund of unutilised ITC — zero-rated supplies | s. 54(3)(i) CGST Act | Unchanged | — | Within 2 years of the relevant date | RFD-01 |
| Formula | Rule 89(4) CGST Rules | Unchanged | (Zero-rated services turnover ÷ Adjusted total turnover) × Net ITC | Per tax period or clubbed periods | Statement 3 |
| Net ITC | Rule 89(4)(B) | Unchanged | Inputs and input services; excludes capital goods and ITC claimed under Rules 89(4A)/(4B) | — | — |
| Turnover of zero-rated supply of services | Rule 89(4)(D) | Unchanged | Payments received for services completed in the period + advances received earlier for services completed now − advances for services not yet completed | — | FIRC / e-BRC |
| Relevant date — services | Explanation 2(c) to s. 54 | Unchanged | Receipt of forex (service completed before payment) or invoice date (advance received) | — | — |
| Provisional refund | s. 54(6); Rule 91 | Unchanged | 90% within 7 days of acknowledgement | — | RFD-04 |
| Final order | s. 54(7); Rule 92 | Unchanged | Within 60 days of complete application | Interest at 6% if delayed | RFD-06 |
| Procedure and documents | Circular No. 125/44/2019-GST (master circular) and later amendments | Unchanged | Electronic filing; Statement 3; FIRC/BRC; undertaking | — | — |
What is being refunded
Not the output tax (there is none under LUT) but the GST the Indian company paid on its own purchases — office rent, software subscriptions, laptops' consumables, professional fees, recruitment, canteen and the like — which sits in the electronic credit ledger with nothing to set off against. Section 54(3) allows a refund of that accumulated credit where it arises from zero-rated supplies made without payment of tax. ITC that is blocked under section 17(5) (for example, on most motor vehicles, employee food and beverages, club memberships, construction) was never creditable and is not refundable.
The formula
Refund amount = (Turnover of zero-rated supply of services ÷ Adjusted total turnover) × Net ITC
- Net ITC — ITC availed on inputs and input services during the refund period, excluding capital goods and excluding credit on which refund has been claimed under the deemed-export or merchant-export routes.
- Turnover of zero-rated supply of services — payments received during the period for export services, plus advances received in earlier periods for services completed in this period, minus advances received in this period for services not yet completed. It is a cash-plus-completion measure, not an invoicing measure, which is why FIRCs for the period drive the number.
- Adjusted total turnover — total turnover in the state (zero-rated services turnover as computed above plus domestic turnover) for the period, excluding exempt supplies other than zero-rated and excluding turnover of supplies on which refund is claimed under other sub-rules.
For a pure export captive with no domestic supplies, the ratio is one and the refund equals Net ITC for the period — subject to the balance actually available in the credit ledger at the time of filing, which caps the claim.
Time limit and relevant date
Two years from the relevant date. For services, Explanation 2(c) to section 54 fixes the relevant date as the date of receipt of payment in convertible foreign exchange where the supply was completed before payment, or the date of issue of the invoice where payment was received in advance. Track it per invoice; a quarterly claim's limitation runs from the earliest receipt in that quarter. Refund periods may be clubbed across months and quarters, but not across financial years in a single application.
Filing and documents
- RFD-01 on the portal, category "Refund of unutilised ITC on export of services without payment of tax", for the chosen period.
- Statement 3: invoice-wise list of export invoices with the corresponding FIRC/e-BRC number, date and amount.
- Copies of FIRCs / FIRA or e-BRCs; the Rule 89(4) computation; GSTR-2B / purchase register reconciliation for Net ITC; an undertaking that the ITC is not claimed elsewhere; a declaration that the incidence of tax has not been passed on (not required for zero-rated claims above the threshold where unjust enrichment does not apply, but routinely attached).
- The LUT acknowledgement for the year, and the agreement if asked.
The officer issues an acknowledgement in RFD-02 within fifteen days (or a deficiency memo in RFD-03, which requires a fresh application), a provisional sanction of 90% in RFD-04 where applicable, and a final order in RFD-06 within sixty days. Interest at 6% accrues on delay beyond sixty days.
Common deficiency memos and how to avoid them
- FIRC amounts don't match invoices — bank charges, conversion differences and part payments. Provide a reconciliation per invoice.
- ITC claimed on items not reflected in GSTR-2B — refund of ITC is restricted to invoices reflected in GSTR-2B; follow up vendors before the claim.
- Capital goods ITC included in Net ITC — exclude it.
- Exports made before the LUT date — see the LUT page.
- Services to a recipient with an Indian establishment or intermediary services for pre-March-2026 periods — the export status itself is questioned.
Worked example
Quarter July–September 2026. Indian subsidiary with exports and a small domestic contract.
| Item | ₹ lakh |
|---|---|
| Export invoices raised in the quarter | 960 |
| Foreign exchange received in the quarter for services completed (per FIRAs) | 900 |
| Advance received in September for October services | (60) — excluded |
| Advance received in June for July services, now completed | +40 |
| Turnover of zero-rated supply of services | 880 |
| Domestic taxable supplies in the quarter | 120 |
| Adjusted total turnover | 1,000 |
| ITC availed in quarter on inputs and input services (per GSTR-2B) | 31.5 |
| Less: ITC on capital goods (laptops, furniture) | (3.5) |
| Net ITC | 28.0 |
| Refund = (880 ÷ 1,000) × 28.0 | 24.64 |
| Balance in electronic credit ledger on filing date | 26.1 — claim not capped |
The remaining ₹3.36 lakh of Net ITC is used against IGST/CGST/SGST on the ₹120 lakh of domestic supplies. The relevant date for the earliest receipt in the quarter (4 July 2026) means the claim must be filed by 3 July 2028; the company files it in October 2026.
Common mistakes we see
- Computing zero-rated turnover from invoices raised instead of foreign exchange received for completed services.
- Including capital goods ITC in Net ITC — it is refundable only on the 'export on payment of tax' route, not under Rule 89(4).
- Filing one application spanning two financial years.
- Claiming ITC not yet reflected in GSTR-2B and receiving a deficiency memo that resets the clock.
- Ignoring the credit-ledger cap: the refund cannot exceed the balance available when the application is filed.
- Missing the two-year window on early-period receipts while waiting to 'club' several quarters.
Frequently asked questions
What is the formula for ITC refund on export of services?
Refund = (Turnover of zero-rated supply of services ÷ Adjusted total turnover) × Net ITC, under Rule 89(4) of the CGST Rules. Net ITC excludes capital goods.
What is the time limit for claiming the refund?
Two years from the relevant date — for services, the date of receipt of foreign exchange (if the service was completed before payment) or the invoice date (if payment was received in advance).
Can I claim refund of ITC on capital goods?
Not under the unutilised-ITC route in Rule 89(4). Capital goods ITC is refundable only if you export on payment of IGST and claim refund of the tax paid.
How quickly is the refund paid?
Ninety per cent may be sanctioned provisionally within seven days of acknowledgement; the final order is due within sixty days. Interest at 6% applies to delays beyond sixty days.
Do I need a FIRC for each invoice?
The claim must be supported by bank realisation evidence (FIRC, FIRA or e-BRC) for the foreign exchange received in the period, reconciled invoice-wise in Statement 3.
Can refund periods be clubbed?
Yes, across months or quarters within the same financial year, but one application cannot span two financial years.
Is the refund taxable income?
No. It is a recovery of tax paid on inputs; it reduces the GST expense or receivable in the books.
Sources
Primary sources only. Statutory text is read from the official publication; where a provision has been renumbered, the pre-2026 reference is given alongside so older material can be reconciled.
- CGST Act, IGST Act, CGST Rules and GST circulars — CBIC
- GST portal — LUT (Form GST RFD-11), refunds and returns
Last reviewed on 1 November 2026 by Monal Agarwal, FCA, VMS Jhunjhunwala & Co. Law stated as at that date; the Income-tax Act, 2025 and Income-tax Rules, 2026 apply from 1 April 2026.
