A service exporter that exports under a Letter of Undertaking pays no GST on its main output, but still pays GST on rent, software, professional fees and other inputs. That credit builds up in the electronic credit ledger with little to set it against. Section 54(3) of the CGST Act allows a refund of this unutilised input tax credit for zero-rated supplies made without payment of tax. The refund is calculated by formula under Rule 89(4) of the CGST Rules and claimed in Form GST RFD-01. For a services business, the formula works on foreign receipts in the period, not on invoices raised. That single point explains most refund claims that come out lower than expected.
Why credit accumulates
A domestic service business sets the GST charged to customers against the GST paid on inputs. A service exporter under LUT charges no output tax, so there is nothing to set the input credit against except any domestic sales. The credit does not disappear, but it is cash the business has paid and cannot use. For exporters with mainly foreign revenue and a meaningful cost base in India, the balance can grow every month. The refund is how it comes back.
The alternative is to export on payment of IGST and claim a refund of the tax paid, under section 16(4) of the IGST Act. That is a different claim with different mechanics. This post covers the LUT route, which most service exporters use.
The legal basis
Under the first proviso to section 54(3) of the CGST Act, a registered person may claim a refund of unutilised input tax credit at the end of any tax period in two cases. Zero-rated supplies made without payment of tax is the first. Export of services under an LUT falls squarely within it.
The application must be filed within two years from the relevant date (section 54(1)). For services exported, Explanation 2 to section 54 sets the relevant date as the date of receipt of payment in convertible foreign exchange, or in rupees where RBI permits, where the service was completed before payment. Where payment was received in advance, it is the date of issue of the invoice. Track the two-year window from those dates for each claim period.
How the refund is calculated
Rule 89(4) of the CGST Rules sets the formula:
Refund amount = (Turnover of zero-rated supply of goods + Turnover of zero-rated supply of services) × Net ITC ÷ Adjusted total turnover
Three definitions do the work.
- Turnover of zero-rated supply of services is the aggregate of payments received during the period for zero-rated services. It also includes services completed in the period where payment was received in advance in an earlier period, and it excludes advances received for services not yet completed. In plain terms, foreign money received in the period drives the refund, not invoices raised.
- Net ITC is input tax credit availed on inputs and input services during the period. Credit on capital goods is not part of it, so the GST on laptops, servers or office fit-out is not refunded through this formula.
- Adjusted total turnover is the turnover in the State or Union territory, excluding exempt supplies other than zero-rated supplies, and excluding supplies for which refund is claimed under Rules 89(4A) or 89(4B). It is the denominator that apportions credit between export and domestic activity.
What this means in practice. Suppose a business invoices heavily in March but its clients pay in April. The March claim will show low export turnover, because payments have not arrived, against a full month of input credit, and the refund will be small. The same receipts will lift a later period's claim. Plan claim periods so that receipts and the credit that supports them fall in the same claim. Claims can cover more than one tax period.
The documents the officer asks for
The application in Form GST RFD-01 is filed on the GST portal with supporting statements. Expect to provide the following.
- The statement of export invoices with realisation evidence. For export of services, Rule 89(2) requires a statement of the number and date of invoices with the relevant Bank Realisation Certificates or Foreign Inward Remittance Certificates. CBIC Circular No. 37/11/2018-GST lists BRC or FIRC among the documents for export of services refunds.
- The LUT acknowledgement for each financial year covered, with its ARN.
- The statement of input tax credit: invoice-wise details of the credit claimed in the period. The credit must be eligible under sections 16 and 17 of the CGST Act and should reflect in GSTR-2B.
- The Rule 89(4) calculation, showing each element of the formula and reconciling it to GSTR-1 and GSTR-3B for the period.
- Contracts or engagement letters for the main foreign clients, which establish that the recipient is located outside India and that the place of supply is outside India.
- Where the client is a group company, evidence that it is a separate legal entity, such as its incorporation details. Supplies to a group company can be exports, but supplies to the same company's own establishment abroad fail condition (v) of section 2(6) of the IGST Act. Officers often ask this question, so answer it in advance.
Most deficiency memos come from mismatches: receipts in the claim that do not tie to FIRCs, credit that does not match GSTR-2B, or turnover figures that differ from the returns. A reconciliation prepared before filing prevents most of them.
The realistic timeline
The statutory steps are:
- Acknowledgement or deficiency. Under Rule 90, the officer issues an acknowledgement in RFD-02, or a deficiency memo in RFD-03, normally within fifteen days of filing. A deficiency memo means correcting and refiling.
- Provisional refund. Section 54(6) provides for a provisional refund of 90% of the claim for zero-rated supplies. Rule 91(2), as amended by Notification No. 13/2025-Central Tax from 1 October 2025, requires the provisional order within seven days of the acknowledgement. Under CBIC Instruction No. 06/2025-GST, applications are risk-scored by the system, and the 90% provisional refund applies to those categorised as low-risk. Notification No. 14/2025-Central Tax excludes some categories, including registered persons who have not completed Aadhaar authentication.
- Final order. Under section 54(7), the final order is due within sixty days from the date of receipt of a complete application. If the refund is not paid within that period, section 56 provides for interest.
In practice, the timeline depends on the quality of the application more than on anything else. A claim whose numbers tie to the returns and whose receipts tie to FIRCs is the one that moves through without a memo.
A routine that keeps refunds flowing
- Reconcile foreign receipts to export invoices every month, and collect FIRCs or e-BRCs as payments arrive.
- Reconcile input credit to GSTR-2B every month, so ineligible or missing credit is caught early.
- Choose a regular claim cycle, monthly or quarterly, and file soon after the period closes.
- Keep a claim file for each period with the calculation, statements and acknowledgements, and record the relevant date for the two-year limit.
Where this fits
A refund starts with a valid LUT and a clean export trail. See Letter of Undertaking for service exporters and GST on export of services after the Finance Act 2026 intermediary change.
Wissen Solutions prepares refund applications for service exporters, including the reconciliations behind them, through our GST, income tax and TDS return filing services.
Sources (checked 24 October 2026)
- CGST Act, section 54, as amended (Explanation 2, clause (c) for services exported)
- CGST Rules, Rule 91 (as substituted by Notification No. 13/2025-CT)
- Notification No. 14/2025-Central Tax
- GST Council flyer: Refund of unutilised input tax credit: Rule 89(4) formula and definitions
- CBIC Circular No. 37/11/2018-GST dated 15.03.2018: documents for export of services refunds
- Summary of CBIC Instruction No. 06/2025-GST dated 03.10.2025: risk-based provisional refund; Notifications No. 13/2025-CT and 14/2025-CT dated 17.09.2025
- CGST Rules, Rules 89, 90 and 91; CGST Act, section 56