Top 7 GST Refund Mistakes and How to Avoid Them in 2025

7 Most Common GST Refund Errors and How to Correct Them

Don't Let Your Money Get Trapped!

If you are an exporter, business owner, or accountant, you probably realize how essential GST refunds are to ensure a good cash flow. Refund of taxes under the Goods and Services Tax (GST) is meant to help avoid taxes becoming an expense to businesses dealing with zero-rated supply, e.g., exports.

But in reality, most claims are rejected or held up because of such avoidable, minor errors -GST filing errors that tie up working capital for months and make for perpetual follow-ups with the department.

Read - Gst Reforms

Mistake #1: Erroneous Calculation and Proration of Input Tax Credit (ITC)

Companies tend to get the eligible amount of refund wrong because they fail to properly split the Input Tax Credit (ITC) between zero-rated supplies (exports) and domestic taxable supplies.

Reason for occurrence:

The ambiguity usually stems from the formula in Rule 89(4) of the CGST Rules, specifically in the definition of the term "Adjusted Total Turnover."

How to prevent it:

Apply the right formula always:

Refund Amount = (Turnover of zero-rated supply of goods + Turnover of zero-rated supply of services) × Net ITC ÷ Adjusted Total Turnover

Ensure your figures of turnover reconcile with GSTR-3B and GSTR-1. Also, keep in mind that "Adjusted Total Turnover" does not include the value of supplies that are exempt except the zero-rated supplies.

Checklist:

1. Accurately apply the Rule 89(4) formula.
2. Reconcile turnover for all returns before application.

Mistake #2: Non-matching of GSTR-3B, GSTR-1, and Shipping Documents

Inconsistencies in invoice numbers, taxable values, or IGST, CGST, and SGST amounts between GSTR-1, GSTR-3B, and shipping documents (Shipping Bills or Bills of Export) can stop your refund.

Why It Occurs:

Human errors during manual data entry, taxable Value, Invoice Value, omitted amendments, or system mismatches are the usual causes of discrepancies.

How to do it correctly:

Do a three-way ensuring between:

● Accounting records

● GSTR-1 and GSTR-3B

● Export documents and ICEGATE data

All the things must be the same as the above documents (from an additional space in the invoice number to the number of documents)

Must check:

Check invoice details from GSTR-1, GSTR-3B, and all the Shipping Bills.

Error #3: Filing a Refund Claim Under the Wrong Category

Most taxpayers make the wrong choice of refund type in Form RFD-01 - for example, selecting "Refund of excess balance in electronic cash ledger" rather than "Refund of ITC on account of exports without payment of tax."

Reason for occurrence:

The refund form has several categories, and their explanations could be misleading to non-experts.

How to avoid the trap:

Read the list of refund categories very carefully before selecting. For exports with no payment of IGST, always opt for "Refund of unutilized ITC on account of export without payment of tax."

Checklist:

Verify the refund category before submission.

In case of doubt, refer to your tax consultant or CBIC's refund type guide.

Mistake #4: Filing of Improper or defective data

Upload not complete, unnecessary or incorrect supporting documents, such as missed invoices, invalid BRCs/FIRCs, or outdated LUTs.

Reason of Occurrence

Incorrectly documented and failed to keep a sole refund file for every claim.

How to prevent it:

Keep a uniform refund folder with:

● Declaration and Undertaking

● Statement 2/3 under Rule 89

● Export invoices

● BRCs/FIRCs

● Valid LUT

Ensure that each document is cleanly scanned and readable.

Checklist:

Keep a digital folder for every refund claim.

Double-check each document uploaded for accuracy and readability.

Mistake #5: Clerical Mistakes in Form GST RFD-01

Minor typos in RFD-01-similar such as incorrect bank account, period, or turnover -can lead to rejection of the refund.

Reason of Occurrence:

Files were submitted in haste without a proper examination process.

How to avoid it:

Please follow these points below written One person drafts the claim, another will check it. Also, get your bank account validated on the GST portal.

Verify each field before submission.

Ensure your refund bank account is active and validated.

Mistake # 6: Filing Refunds on Ineligible or Blocked ITC

Including ITC on ineligible items under Section 17(5) of the CGST Act- like motor vehicles, club memberships, or food and drinks.

Reason of Occurrence:

Neglecting to identify and eliminate "blocked credits" in making refund calculations.

How to prevent it:

Use a distinct ledger for ineligible ITC and make your accounting personnel aware of Section 17(5).

Must verify:

Examine the ITC register to eliminate blocked credits.

Error # 7: Non-coinciding with Rule of 96A which states regarding LUT

Exporters availing zero-rated supply refund without a valid Letter of Undertaking (LUT) for the period concerned.

Reason of Occurrence:

LUT is effective for a single financial year, and most companies do not recall renewing it in April.

How to avoid it:

● Register Form GST RFD-11 in March every year to renew your LUT for the upcoming financial year.

● Include the ARN of the LUT on each export invoice.

Must check:

1. Make LUT validity extend through the refund period.
2. Mark calendar reminders for periodic LUT renewal.

How MyGst Refund service assists clients in obtaining their GST refunds

We simplify the whole process to speed up your money return. Here's how it works:

• Expert Filing: To prevent rejections, we handle all the complex paper work and ensure proper filing.
• Faster Processing: Through minimizing delays, our expertise allows you to release your stuck working capital quickly.
• No Hassle Follow-up: With the GST department, we take care of all the follow-ups and correspondence.

Frequently Asked Questions

Q1. Who is eligible to receive a GST refund?

Any taxpayer is eligible to claim a refund of GST if he has overpaid tax to the government through exports or have made a tax payment in mistake

Q2. How long does it take to receive the refund?

The GST department or the office of India settles refund claims within 60 working days from the date of application.

Q3. How does the refund of ITC differ from the refund of IGST on exports?

You claim the refund of ITC when you export goods/services without paying IGST against a valid Letter of Undertaking (LUT).

Q4. What if my refund has been claimed i in the wrong category?

If you have made your claim in the incorrect category, your claim can be rejected.

Q5. How do I verify whether my LUT is valid or not?

LUTs are valid for 1 financial year (April–March). You should ensure to file a new LUT at the beginning of every financial year on Form RFD-11.