GST Refund Formula Explained explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
There are two GST refund formulas, both in Rule 89 of the CGST Rules. Rule 89(4) works out the ITC refund on exports and SEZ supplies made under LUT or bond. Rule 89(5) works out the ITC refund where credit piles up because inputs are taxed at a higher rate than outputs. This page sets out both, defines each term and runs round numbers through them. The deeper posts linked below cover the edge cases.
Rule 89(4): Refund = (Turnover of zero-rated goods + Turnover of zero-rated services) × Net ITC ÷ Adjusted Total Turnover. Net ITC here is ITC on inputs and input services. Export goods are valued at the lower of FOB and invoice value, and capped at 1.5 times the value of like goods supplied domestically. Rule 89(5): Maximum refund = {(Turnover of inverted rated supply) × Net ITC ÷ Adjusted Total Turnover} − {Tax payable on that supply × (Net ITC ÷ ITC on inputs and input services)}. Net ITC here is ITC on inputs only. The portal then allows the least of the formula amount, the credit-ledger balance at the end of the period (after GSTR-3B), and the balance at the time of filing.
Which formula applies to which refund
| Refund category | Formula |
|---|---|
| Export of goods or services without payment of IGST (LUT/bond) | Rule 89(4) |
| Supplies to SEZ unit/developer without payment of tax | Rule 89(4) |
| ITC accumulated due to inverted duty structure | Rule 89(5) |
| Exports with payment of IGST | No formula; refund of IGST paid (Rule 96 for goods) |
| Excess cash-ledger balance, excess tax paid, deemed exports | No formula; refund of the amount paid or held |
The formula is applied on the consolidated ITC: central tax + State/UT tax + integrated tax together, as the Refunds Handbook notes. You can test your own figures in the GST refund calculator.
Rule 89(4): the zero-rated refund formula
Refund Amount = (Turnover of zero-rated supply of goods + Turnover of zero-rated supply of services) × Net ITC ÷ Adjusted Total Turnover
What each term means, from the rule:
- Net ITC: ITC availed on inputs and input services during the relevant period. ITC on capital goods is not included.
- Turnover of zero-rated supply of goods: the value of goods supplied without tax under LUT or bond in the period, or 1.5 times the value of like goods domestically supplied by the same or a similarly placed supplier, whichever is less. Under the Explanation inserted by Notification 14/2022-CT, the export value is the lower of the FOB value in the shipping bill and the invoice value.
- Turnover of zero-rated supply of services: payments received during the period for zero-rated services, plus services completed in the period for which an advance came earlier, minus advances received for services not yet completed.
- Adjusted Total Turnover: the State turnover excluding services, plus zero-rated and other services as above, excluding exempt supplies other than zero-rated supplies.
- Relevant period: the period for which the claim is filed.
Illustration 1: basic LUT export claim (round figures).
| Item | ₹ |
|---|---|
| Export of goods under LUT (lower of FOB and invoice) | 60,00,000 |
| Domestic taxable supplies of goods | 40,00,000 |
| Adjusted Total Turnover | 1,00,00,000 |
| Net ITC (inputs + input services) | 10,00,000 |
| Refund = 60,00,000 × 10,00,000 ÷ 1,00,00,000 | 6,00,000 |
Illustration 2: the 1.5× cap bites. Same facts, but the like goods sell domestically for ₹36,00,000, so 1.5 × 36,00,000 = ₹54,00,000. That is less than ₹60,00,000, so the export turnover becomes ₹54,00,000. Circular 147/03/2021-GST clarifies that the same capped value is used inside Adjusted Total Turnover too, so ATT = 54,00,000 + 40,00,000 = ₹94,00,000.
Refund = 54,00,000 × 10,00,000 ÷ 94,00,000 = ₹5,74,468 (rounded).
Illustration 3: services turnover. In a quarter, an IT exporter receives ₹38,00,000, of which ₹8,00,000 is an advance for work not yet completed. It also completes work this quarter for which a ₹5,00,000 advance came last quarter. Zero-rated services turnover = 38,00,000 + 5,00,000 − 8,00,000 = ₹35,00,000.
For more on the export side, read the Rule 89(4) zero-rated refund formula and Rule 89(4) and the 1.5 times value cap. Our LUT export refund service files these claims.
Rule 89(5): the inverted-duty formula
Maximum Refund Amount = {(Turnover of inverted rated supply of goods and services) × Net ITC ÷ Adjusted Total Turnover} − {Tax payable on such inverted rated supply of goods and services × (Net ITC ÷ ITC availed on inputs and input services)}
- Net ITC: ITC availed on inputs only during the relevant period. Input services and capital goods are left out.
- Adjusted Total Turnover and relevant period: same meaning as in Rule 89(4).
- The second bracket was substituted by Notification 14/2022-CT (05.07.2022). Before that, the full tax payable on the inverted supply was deducted.
Illustration 4: inverted duty (round figures).
| Item | ₹ |
|---|---|
| Turnover of inverted rated supply (output at 5%) | 1,00,00,000 |
| Adjusted Total Turnover (all inverted) | 1,00,00,000 |
| Tax payable on the inverted supply | 5,00,000 |
| ITC on inputs (Net ITC) | 12,00,000 |
| ITC on input services | 3,00,000 |
| ITC on inputs and input services | 15,00,000 |
Step 1: 1,00,00,000 × 12,00,000 ÷ 1,00,00,000 = ₹12,00,000 Step 2: 5,00,000 × (12,00,000 ÷ 15,00,000) = 5,00,000 × 0.8 = ₹4,00,000 Maximum refund = 12,00,000 − 4,00,000 = ₹8,00,000
Under the pre-July 2022 wording, the whole ₹5,00,000 would be deducted, giving ₹7,00,000. The amendment stops the part of output tax that input services "pay for" from reducing the refund. The Handbook records Circular 181/13/2022-GST's view that the amended formula applies to applications filed on or after 05.07.2022, but also notes that the Gujarat High Court in Ascent Meditech Ltd. (17.10.2024) set that part of the circular aside, holding the amendment clarificatory and applicable to claims filed within the two-year limit. See Net ITC in the refund formula.
More examples, including mixed-rate outputs, are in inverted duty refund formula calculation examples. Our inverted duty refund service handles these claims.
The least-of-three test
The formula result is a ceiling, not the payout. The portal allows the least of:
- the maximum refund under Rule 89(4) or 89(5);
- the credit-ledger balance at the end of the tax period of the claim, after that period's GSTR-3B is filed; and
- the credit-ledger balance when you file the refund application.
Illustration. Formula ₹8,00,000; ledger at period end ₹9,50,000; ledger on filing day ₹6,20,000 because credit was used for later liabilities. Refund allowed: ₹6,20,000. Using credit before filing costs refund, so time the filing accordingly.
The amount is then debited from the credit ledger: IGST first, then CGST and SGST/UTGST equally.
Need help getting the formula inputs right?
Most formula disputes are about inputs, not arithmetic: which credit counts as Net ITC, what goes into Adjusted Total Turnover, which export value to use. We build the working period by period and keep it consistent with GSTR-1, GSTR-3B and the shipping bills. Try the GST refund calculator for a first figure, then ask us to prepare the claim through the GST refund hub.
Key takeaways
- Rule 89(4) covers exports and SEZ supplies under LUT or bond; Rule 89(5) covers inverted duty.
- Net ITC includes input services in 89(4) but only inputs in 89(5); capital goods are out of both.
- Export goods value: lower of FOB and invoice, capped at 1.5× domestic like goods, and the cap flows into ATT.
- The 2022 amendment to 89(5) deducts only a proportion of output tax.
- The refund is the least of the formula amount and the two ledger balances.
Read next
- Rule 89(4) zero-rated refund formula
- Rule 89(4) refund formula and the 1.5 times value cap
- Inverted duty refund formula calculation examples
- GST refund calculation for export without payment: example
Disclaimer: Positions stated as on 30 September 2026, based on the CGST Act and Rules as amended, the Finance Act 2026, and the ICAI Handbook on Refunds under GST (January 2026). Verify current notifications before filing.