GST Payments and Refunds

GST payments and refunds


There are less than 4 months left for the implementation of GST on July 1. GST would streamline the process of tax payments and refunds, bringing in transparency and accountability. The GST Council, appointed by the government of India, has an uphill task of setting the rates so that the tax revenues of both the center and state are not affected. The first step towards decoding the rates under GST was to decide on the revenue neutral rate (RNR). Revenue neutral rate is calculated on the basis of total revenue desired and the total consumption expenditure of the country.

The Subramanian committee studied three different approaches in order to figure out the revenue neutral rate. According to the latest recommendation from the Subramanian committee, the revenue neutral rate should be fixed around 18%. Currently, there are four different tax rates expected under GST depending on the type of good/service. The four rates are 5%,12%,18%, and 28%.

There is a significant change in the calculation of tax under GST. CGST, SGST, IGST are the three new terms which are introduced under the new tax laws. CGST refers to Central Goods and Service Tax, SGST refers to State Goods and Service Tax, and IGST is the Integrated Goods and Service tax, which would be charged on the inter-state goods/services. Goods/services sold or resold within the state would be liable to pay only CGST and SGST.

This table shows the tax liability under different circumstances-

Goods sold from Delhi to Bombay NO NO YES
Goods sold within Bombay YES YES NO
Goods sold from Bombay to Pune YES YES NO

Payment of Tax Uner GST

Currently, companies pay VAT tax on a monthly/quarterly basis depending on the state and their turnover. CST is paid when crossing state borders and it is not allowed as input tax credit under the current tax laws. Excise duty is also levied on the capital goods.

GST would subsume all the above-mentioned taxes. Tax payment would be due at the time of supply of goods under GST. As per the updated GST model law “Every deposit made towards tax, interest, penalty, fee or any other amount by a taxable person by internet banking or by using credit/debit cards or National Electronic Fund Transfer or Real Time Gross Settlement or by any other mode, subject to such conditions and restrictions as may be prescribed in this behalf, shall be credited to the electronic cash ledger of such person to be maintained in the manner as may be prescribed”. It states that the taxpayer can pay the tax due through electronic modes and it will be automatically debited to his electronic cash ledger.

Electronic cash ledger, electronic input tax credit ledger, and tax liability ledger have to be maintained by each person registered under GST.

Electronic cash ledgers will record data of tax, interest, penalty, fees paid and payment under CGST, SGST, and IGST. Details of the input tax credit available under all heads would be available in the Electronic Input Tax credit ledger. Tax liability ledger is to be also maintained electronically for any outstanding liability arising out of the regular return, notices, penalties.

Credit available under the electronic input tax credit ledger can be utilized in the following ways-:

  1. Fulfillment of liability arising due to a regular return under GST.
  2. Credit reversed due to a mismatch in invoice or amount of credit.
  3. Payment of any liability which arose due to receipt of demand notices.

Input tax credit not claimed for up to one year from the date when tax invoice was raised shall be considered as expired.

Refund Under GST

Currently, the refund for the excess of VAT/CST paid is claimed annually. Refund on the excess of excise duty paid is paid through the duty drawback scheme. There are a lot of delays under the current system in providing the refund for excise/VAT/CST.

GST would improve the system of calculation, application, and processing of the refund. Refunds would be calculated for each major head (CGST, SGST, IGST) separately. An application form has to be filed on the GSTN portal for claiming the refund. Since all the data will be uploaded electronically, calculation of refunds would become automated.

As stated in the GST Model Law, “If any tax ordered to be refunded under section 48 to any applicant is not refunded within sixty days from the date of receipt of application under sub-section (1) of that section, interest at such rate as may be specified in the notification issued by the Central or a State Government on the recommendation of the Council shall be payable in respect of such refund from the date immediately after the expiry of sixty days from the date of receipt of application under the said subsection till the date of refund of such tax”. The processing time for a refund application has been kept as sixty days under GST model law but it could be as early as two weeks.

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  1. Forms for payment of dues under GST have to be filed electronically through the common portal. GST PMT-01 has to be filed by the applicant.
  2. Forms for application of refund under GST have to be filed electronically. Certain documents have to be submitted along with GST RFD-01 for the refund.
  3. Important definitions and interest rates for refund under GST are explained in this article. Definition of 'Relevant date' is important for refund under GST
  4. Provisional refund and United Nations refund application forms are different than the regular refund forms. Provisional refund is granted on 0 rated goods.
  5. Refund Claims under GST for Tax and ITC is a simplified process. Interest on the delay of refund is 6% except for zero-rated/exempted goods.
  6. TDS and TCS under GST would affect the government civil contractors and e-commerce aggregators. 1% TCS to be deducted by Flipkart, amazon etc.
  7. Payment process under GST would be a completely online process. Tax liability would be calculated under IGST, CGST, SGST separately.
  8. TDS needs to be deducted at rate of 1% on value of supply where the supply value under a contract exceeds Rs. 5lakh under GST. The tax is to be deducted by specified persons/entities as notified by the government.
  9. Refund process under GST will be a much faster aand smoother process. It is expected that processing time for refund under GST might be 7 days.