GST Export Refunds In 2026: Key Differences Between Rule 96 And Rule 89

The make in India initiative highlights the significance of exporters in transforming India into a global manufacturing hub. The volume of exports drives the economic growth of the country with benchmarks set to achieve $5 Trillion Economy.

However, the frequent changes brought in GST laws relating to exports, with refund mechanisms and other stringent conditions has come to pose challenges to the exporters.

Key Takeaways

• Exports under GST is treated as “Zero-Rated Supplies”, which allows the exporters with the facility to claim refund of taxes paid or accumulated ITC. 
• The two modes to claim refunds are explained in Rule 96 and Rule 89, in which exporters can claim the refund on exports either with payment of IGST or through Letter of Undertaking(LUT)/Bond.
• It is important to note that exporters cannot claim both the options of refund for the same export as it would result in double taxation benefit which is not permissible under GST law.
• Notification No. 20/2024 which was issued by the department after 54th GST council meeting, stating few omissions under both the aforesaid rules, relieving the exporters by removing key restrictions and making the mechanisms to claim refund under both the rules much simpler.
• It is also significant to note that the exporter should properly adhere to the said provisions of both the rules, maintain proper invoices and documentation to avoid refund delays or rejections.
• Refund claims must be filed within 2 years from the relevant date under Section 54 of the CGST Act, 2017.

What is GST Export Refund?

A GST export refund is a mechanism introduced by GST laws in which the exporters in India are allowed to claim refunds on the taxes paid for export supplies; since exports are considered to boost economic growth, this mechanism ensures that exporters are not burdened with tax expenses, hence exports are usually classified as “zero-rated supplies.”

The following supplies are classified under exports:

1. Supply of goods to outside India.
2. Supply of services outside India.
3. Supplies made to SEZ units/ developers for authorised operations.

It is crucial to note that the above are zero rated supplies and not exempted supplies.

What is the GST Export Refund Process?

The GST export refund process guides the exporter to claim the refund of taxes paid on exports or on inputs used for exports.

There are mainly two refund routes:

1. Export without payment of GST- GST laws give the exporter with an option to export goods and services through a facility called LUT (Letter of Undertaking). LUT is a declaration given by the exporter declaring to the GST department that:

• Applicable GST laws for exports are complied with.
• Exports will be completed within prescribed time.
• IGST will be paid if the export conditions are not adhered to.

LUT can be furnished by a registered person in the GST portal through Form GST RFD 11,  which is valid up to one financial year (Rule 89).

2. Exports with payment of IGST- This is a much simpler procedure where the IGST is paid by the exporter on the export invoice and the refund can be claimed. The shipping bill through which the export is made is considered as a refund application. Accordingly, Customs will process the refund automatically. The exporter can claim the refund of IGST paid as per Rule 96.

Overview of Rule 96 - Refund of IGST Paid on Exports

Rule 96 of CGST Rules, 2017 explains the procedure of mechanism to claim refund on IGST paid on goods exported outside India. The rule is applicable in the following cases:

1. Exporter does not furnish LUT/Bond 
2. Export is made on the payment of IGST on goods.
3. Exporter claims refund of IGST paid and not of ITC.

The subrules of this rule can be explained in simple words:

1. Rule 96(1) – The exporter to claim IGST refund has to pay the IGST tax first, and such should be reflected in his GSTR 1 and GSTR 3B accordingly in the relevant period. The exporter can claim the refund through the shipping bill which is treated as a refund application, provided the applicant has done Aadhar authentication as per Rule 10B and has furnished a valid GSTR 3B. Alternatively, if the applicant wants to revise the amount of export, he can do so by filing FORM GST RFD 01.
2. Rule 96(2) - GST portal facilitates the automated paperless refund of IGST paid on export of goods. It mandates the GST portal to electronically transmit the export invoice details from GSTR-1/ Table 6A, to the Customs system, which confirms the refunds on exports automatically.
3. Rule 96(3) - This rule states that the  IGST paid on exports will be automatically refunded upon filing of valid GSTR 3B, and shipping bill. The system electronically credits the IGST paid directly to the exporter’s bank account, matching the export invoice data with the Customs systems.

Overview of Rule 89 - Refund of Unutilised ITC on Exports

Rule 89 of CGST Rules, 2017 prescribes the rules, conditions, and procedures for claiming refund on exports through LUT. The rule is applicable when the refund is claimed in the following cases:

1. Export under LUT/Bond i.e., in the case of without payment of IGST.
2. Supplies to SEZ Units/ Developers.
3. Inverted Duty structure.
4. Deemed Exports.

The sub rules of this rule can be explained in simple words:

1. Rule 89(1) – It states that the application for claiming:

• Unutilised ITC on zero rated supplies,
• Tax paid on deemed exports, and 
• Eligible ITC in inverted duty structure cases subject to conditions;

The application can be filed in FORM GST RFD-01 electronically through the common portal. Such an application can be filed either directly or indirectly through a facilitation centre notified by the commissioner.

2. Rule 89(2) – It states that the application filed under Sub rule 1 must be accompanied by following documentary evidences in Annexure 1 in FORM GST RFD-01:

• Statement of export invoices with invoice-wise details.
• Shipping number and bills details.
• Declaration stating that:
  • Goods/services have been exported/supplied.
  • Export proceeds will be realised.
  • Consideration receivable is in convertible foreign exchange or RBI permitted INR.

3. Rule 89(3) - Where the application relates to refund of input tax credit, the electronic credit ledger shall be debited by the applicant by an amount equal to the refund so claimed.
4. Rule 89(4) – Formula to calculate Refund amount is (Turnover of Zero-Rated Supply × Net ITC) / Adjusted Total Turnover

Key Differences Between Rule 96 and Rule 89

Impact of Omissions Announced in 54th GST Council: The New Clarity for Exporters

The 54^th meeting of GST council happened in September 2024 simplified export refund procedures to taxpayers. In this regard, Notification No.20/2024 was issued in which Rule 96(10) and Rule 89(4A) and 89(4B) were omitted and related amendments came into effect from 8th October 2024.

The recent omissions in the GST rules stated regarding:

• Rule 96(10) which previously restricted refunds on IGST exports when specified customs were used. 
• Rule 89(4A) and Rule 89(4B) related to refund of ITC with special conditions.

Rule 96(10):

Earlier this rule stated that the exporters were barred from claiming IGST refund if they had availed benefits under:

• Advance Authorisation
• EPCG (Export Promotion Capital Goods)
• Duty Drawback
• Merchant Exporter Concessional Rate

With effect to the notification issued, this restriction is now removed for later periods.

Rule 89(4A):

This rule restricted the ITC refund where the exporter procured inputs under:

• Advance Authorisation
• EPCG Scheme
• EOU (Export Oriented Unit)/ SEZ benefits
• Other duty free and concessional schemes

The rule stated that while calculating the amount of refund shall exclude ITC attributable to such concessional imports which often resulted in reduced refund amounts and complex computations.

With effect to the notification issued, such exclusion of ITC claimed from the above-mentioned inputs is no longer required.

Rule 89(4B):

This rule further stated that if your supplier has already received the GST benefit/refund on the goods you purchased for export, then you as a buyer cannot claim ITC refund on the same tax portion. This rule was brought in with the intention to avoid double taxation benefit under the export chain. However, this created ambiguity in refund claiming situations and led to litigations.

With effect to the notification issued, such disallowance is omitted, and there is uniform refund treatment.

Overall Impact of such omissions:

The omissions in the relevant rules now facilitated the exporters can freely claim the refund of unutilised ITC even if supplier has availed export related benefits or has supplied under certain concessional notifications.

Further, it resulted in certain benefits such as uniform treatment of exports with payment of IGST and exports under LUT, and has certainly made the refund mechanisms much simpler by removing extra compliance burden.