Integrated Goods and Services Tax (IGST) is levied on interstate and international transactions. Exporters can claim a refund on the IGST paid while exporting goods or services from India. The refund ensures that exports remain zero-rated, allowing businesses to recover their tax costs.
There are two primary ways to export under GST:
1️⃣ Export with Payment of IGST (Refund Route)
2️⃣ Export Without Payment of IGST (LUT/Bond Route)
Both methods have different tax implications and benefits, which we will elaborate on below.
1. Export with Payment of IGST (Refund of IGST Paid)
Understanding the Process
- In this mechanism, the exporter pays IGST at the time of exporting goods or services and later claims a refund of the IGST paid.
- The shipping bill filed with Customs (ICEGATE) serves as the refund application.
- The refund is processed automatically, subject to validation by GSTN and Customs.
Eligibility Criteria
- The exporter must have GST registration and a valid IEC (Importer Exporter Code).
- The exported goods must be categorized as zero-rated supplies under GST.
Step-by-Step Process
1. Filing GST Returns:
- The exporter reports export details in Table 6A of GSTR-1.
- The tax paid is declared in Table 3.1(b) of GSTR-3B.
2. Customs Validation:
- The details in GSTR-1 and shipping bill must match.
- The Export General Manifest (EGM) must be filed by the shipping carrier.
3. Automatic Refund Processing:
- The ICEGATE system validates the GST details with Customs.
- Upon successful validation, the IGST refund is processed automatically to the exporter’s bank account.
Advantages of Exporting with Payment of IGST
✅ Faster Refunds – Refunds are typically processed within 30 days, improving cash flow.
✅ No Accumulation of ITC – Exporters don’t have to deal with accumulating unutilized Input Tax Credit.
✅ Simplified Compliance – No requirement to furnish a Letter of Undertaking (LUT) or Bond.
Disadvantages
❌ Upfront Payment – Exporters must initially pay IGST, which affects working capital.
❌ Risk of Delays – Errors in GST returns or mismatches in shipping bill details can lead to delays in refund processing.
2. Export Without Payment of IGST (Under Bond/LUT – Refund of Input Tax Credit)
❌ Upfront Payment – Exporters must initially pay IGST, which affects working capital.
❌ Risk of Delays – Errors in GST returns or mismatches in shipping bill details can lead to delays in refund processing.
❌ Export Without Payment of IGST (Under Bond/LUT – Refund of Input Tax Credit)
Understanding the Process
- In this mechanism, exporters are not required to pay IGST at the time of export.
- Instead, they furnish a Letter of Undertaking (LUT) or Bond to the GST department.
- They can claim a refund of unutilized Input Tax Credit (ITC) related to export supplies.
Eligibility Criteria
- Exporters must have an active GST registration.
- A Letter of Undertaking (LUT) must be filed before starting tax-free exports.
- The exporter should have no pending tax liabilities or GST violations.
Step-by-Step Process
1. Filing LUT or Bond:
For LUT: Applicable for exporters who haven’t been prosecuted for tax evasion above ₹2.5 crores.
For Bond: Required if the exporter is ineligible for LUT. A security deposit may be needed.
2. Export of Goods or Services:
The exporter supplies goods without paying IGST and files the shipping bill.
Details of export transactions are reported in Table 6A of GSTR-1.
3. Claiming Refund of ITC:
Refund application is submitted in Form GST RFD-01.
The eligible unutilized ITC (related to inputs and input services) is credited to the exporter’s bank account.
Advantages of Exporting Without Payment of IGST
✅ No Upfront Tax Payment – Helps maintain better liquidity and working capital.
✅ No Risk of IGST Refund Delays – Since no IGST is paid, exporters avoid refund processing delays.
✅ Continuous ITC Utilization – Allows exporters to claim refunds on unutilized ITC.
Disadvantages
❌ Longer Processing Time – ITC refunds require manual processing, which takes longer than IGST refunds.
❌ Documentation Requirements – Exporters must regularly file LUT/Bond, adding an extra compliance step.
Comparison: Export With vs. Without Payment of IGST
| Parameter | Export with IGST Payment | Export without IGST Payment (LUT/Bond) |
|---|---|---|
| Tax Payment at Export? | Yes (IGST paid at export) | No (LUT/Bond required) |
| Refund Claim Type | IGST refund | ITC refund |
| Processing Time | Faster (auto-refund via ICEGATE) | Slower (manual verification) |
| Ease of Process | Simpler (no LUT/Bond required) | Requires LUT/Bond filing |
| Impact on Cash Flow | Affects liquidity (upfront tax payment) | Better liquidity (no upfront tax) |
| Common Issues | Refund delays due to mismatch errors | ITC refund scrutiny by GST officers |
Which Method Should an Exporter Choose?
1. If fast refunds and simplified compliance are a priority → Export with IGST Payment is preferable.
2. If better cash flow and avoiding upfront tax payments is important → Export without IGST under LUT/Bond is recommended.
🔹 Many small and medium exporters prefer the without payment option, as it avoids blocking funds in tax payments.
🔹 Larger exporters with good financial reserves often opt for IGST payment, as it ensures faster refunds.
Procedure for Claiming IGST Refund on Exported Goods
1. Filing of Returns and Shipping Bill:
- GSTR-1: Exporters must detail their export invoices in Table 6A of the GSTR-1 form. Accurate entry of shipping bill numbers, dates, and port codes is essential.
- GSTR-3B: This is a summary return where exporters declare the IGST paid on exports under Table 3.1(b).
- Shipping Bill: Serving as the refund application, the shipping bill is filed with the customs department via the ICEGATE portal. It’s imperative that details in the shipping bill align with those in GSTR-1.
2.Validation and Processing:
- Post-filing, the GST Network (GSTN) transmits the export data to the Customs system.
- The Customs system cross-verifies the details from GSTN with the shipping bill data.
- Upon successful validation, the refund is processed, and the IGST amount is credited to the exporter’s registered bank account.
3. Key Considerations:
- Export General Manifest (EGM): The filing of EGM by the carrier is mandatory for the processing of refunds. Delays in EGM filing can lead to refund hold-ups.
- Data Accuracy: Ensure consistency across all documents—invoice numbers, shipping bills, and GST returns—to prevent mismatches that could delay refunds.
Timeframe for Refund Processing
The GST law stipulates that refunds should be credited within 60 days from the date of receipt of a complete application. Delays beyond this period may attract interest at the prescribed rate.
Role of ICEGATE in IGST Refunds
The Indian Customs Electronic Gateway (ICEGATE) is the central portal for customs e-filing services. It facilitates:
- E-filing of Documents: Submission of shipping bills and other related documents.
- Tracking Refund Status: Exporters can monitor the status of their refund applications through the ICEGATE portal.
- Error Resolution: Provides insights into errors encountered during processing, enabling timely rectifications.
Best Practices for Exporters
- Timely and Accurate Filings: Ensure that all GST returns and shipping documents are filed punctually with precise details.
- Regular Status Checks: Monitor refund statuses on the ICEGATE portal to identify and address any issues promptly.
- Maintain Consistency: Uniformity in details across all documents minimizes the risk of mismatches and subsequent delays.
How Pragati Exim Solution Can Help You
At Pragati Exim Solution, we provide end-to-end assistance in GST compliance for exporters, including:
✅ IGST refund claim processing
✅ Filing LUT/Bond for tax-free exports
✅ Resolving refund mismatches and errors
✅ Expert advisory on optimizing cash flow for exports
📞 Need help with GST refunds and export compliance?
Contact Pragati Exim Solution for expert guidance and hassle-free solutions!
- 1 What is an IGST refund?
- An IGST refund is a reimbursement provided by the government to exporters or taxpayers who have paid IGST on goods or services that are exported out of India, as exports are considered zero-rated under GST.
- 2 Who is eligible for an IGST refund?
- Export goods or services on payment of IGST, or Supply goods/services under a Letter of Undertaking (LUT) without payment of IGST (and claim input tax credit refund) are eligible for IGST refund.
- 3 How is IGST refund on export of goods processed?
- The IGST refund is processed automatically based on the shipping bill (filed with Customs) and GSTR-1 & GSTR-3B returns. No separate refund application is needed.
- 4 What documents are required for IGST refund on exports?
- Shipping bill (filed electronically) GSTR-1 and GSTR-3B (with correct IGST payment)
- 5 How long does it take to get an IGST refund?
- If all data is correctly filed, IGST refunds are usually processed within 15–30 days from the date of EGM filing.
- 6 Why might an IGST refund be delayed or not processed?
- Mismatch between shipping bill and GSTR-1 Incorrect IGST paid details in GSTR-3B
- 7 Is IGST refund available for service exports?
- Yes. For services exported with payment of IGST, refund is available via Form RFD-01 under the GST portal.
- 8 Can IGST refund be claimed on deemed exports?
- No. Deemed exports are not zero-rated, and IGST refund is not applicable. Instead, a refund of input taxes can be claimed under certain conditions.
- 9 Can I claim both IGST refund and input tax credit (ITC)?
- Claim IGST refund (if you export with IGST payment), or Claim ITC refund (if you export under LUT without IGST payment) — but not both for the same supply
- 10 How to track the IGST refund status?
- Through the GST Portal under 'Refunds' section Via email/SMS alerts from the Customs/GST system
The Integrated Goods and Services Tax (IGST) is a tax levied on goods and services imported into India. When goods are exported, the exporter is eligible to claim a refund of the IGST paid on the goods or services exported, provided certain conditions are met. The IGST refund process is a crucial part of ensuring exporters do not bear the tax burden on their international sales.
At Pragati Exim Solution, we offer comprehensive services to help businesses navigate the IGST refund process, ensuring that you receive your rightful refund without delay or complications.
- 1 What is IGST refund?
- IGST refund is the refund of Integrated Goods and Services Tax (IGST) paid on goods and services that are exported from India. Since exports are considered zero-rated, exporters are eligible to claim back the IGST paid on inputs used in the export process.
- 2 How long does it take to get the IGST refund?
- Once the refund application is filed, the processing time can vary. It generally takes 30 to 90 days to receive the refund after submission, depending on the completeness of the application and verification process.
- 3 What happens if my IGST refund is delayed?
- If there is a delay in receiving the IGST refund, you can track the status through the GST portal or reach out to the relevant tax authorities. In case of a delayed refund without a valid reason, interest may be paid to the exporter by the GST department.
- 4 Can I get IGST refund if I haven't received foreign exchange?
- Yes, IGST refunds are available even if the payment is not received in foreign exchange, provided the exporter has received payment in Indian Rupees (INR) under the Foreign Exchange Management Act (FEMA) guidelines.
- 5 What if the documents submitted are incomplete or incorrect?
- If your application is incomplete or incorrect, the GST department may reject your refund claim or ask for additional documents. It’s essential to ensure that all documents are accurate and complete to avoid delays.