RFD-07 and Refund Adjusted 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.
Your refund was sanctioned, but less than expected reached the bank, and the order mentions an "outstanding demand". The department has used part or all of the refund to settle dues it says you owe. That is allowed, but only for dues that meet a specific test, and people often search for "RFD-07" because older orders showed the adjustment there.
Section 54(10)(b) lets the proper officer deduct from a refund any tax, interest, penalty, fee or other amount you owe under the GST law or existing law, where that amount has not been stayed by the last date for filing an appeal. Under Rule 92(1), the adjusted amount is now shown in the RFD-06 sanction order itself. RFD-07 Part A is the order for withholding a refund (Rule 92(2)), and Part B releases it. A proviso that used RFD-07 Part A for a refund completely adjusted against demand was omitted by Notification 15/2021-CT. Provisionally sanctioned amounts are not to be adjusted.
Where the adjustment appears
| Document | What it shows today |
|---|---|
| RFD-06 | Amount sanctioned, any provisional refund already paid, amount adjusted against outstanding demand, balance refundable (Rule 92(1)) |
| RFD-07 Part A | Order withholding a refund under section 54(10) or 54(11), with reasons (Rule 92(2)) |
| RFD-07 Part B | Order releasing a withheld refund |
| RFD-05 | Payment order for the net amount to be credited to your bank account |
So if you are reading an older order where the whole refund went to a demand and the adjustment sits in RFD-07 Part A, that reflects the rule before the 2021 amendment. For current orders, look at the adjustment line in RFD-06.
If the demand used is disputed, our refund rejection and adjustment support can check whether it met the section 54(10) test at the time of adjustment.
The legal test for adjustment
Section 54(10) applies where a refund is due to a registered person who has defaulted in furnishing a return or who is required to pay any tax, interest or penalty which has not been stayed by any court, Tribunal or Appellate Authority by the specified date. The specified date is the last date for filing an appeal.
Read together, three conditions matter:
- There is an amount payable under the CGST Act or existing law (tax, interest, penalty, fee or other amount).
- The appeal window has closed (the specified date has passed).
- It has not been stayed by that date.
A demand confirmed last week, still within its three-month appeal period, does not yet meet the test. A demand under appeal where the pre-deposit has been paid is covered by section 107(7), which treats recovery of the balance as stayed; that is directly relevant to whether the balance can be deducted.
When adjustment is not allowed
Provisional refunds. The ICAI Handbook records CBIC's clarification that no adjustment or withholding under section 54(10) or (11) is allowed on an amount sanctioned provisionally (RFD-04). Where dues are outstanding, the officer may instead finalise the claim quickly and recover from the final sanction.
Stayed or appealed demands. As above, a demand stayed by the specified date, or whose balance is deemed stayed after pre-deposit, fails the test.
Amounts that are not "payable". A show cause notice that has not been adjudicated is not a demand payable. Treat an adjustment against a mere notice with suspicion.
Worked example (illustration)
| Item | Amount (Rs) |
|---|---|
| Refund found admissible | 5,00,000 |
| Demand A: confirmed, appeal period over, no appeal | 1,20,000 |
| Demand B: confirmed, appeal filed with 10% pre-deposit | 3,00,000 (balance in dispute) |
| Demand C: show cause notice, not yet adjudicated | 80,000 |
Only Demand A meets the section 54(10) test. The correct RFD-06 should show Rs 1,20,000 adjusted and Rs 3,80,000 payable. If the order adjusts Demand B's balance or Demand C, the excess adjustment is open to challenge.
How to contest a wrong adjustment
- Download the RFD-06 and the demand orders. Note the order date, communication date and appeal status of each demand used.
- Check the electronic liability register for how the demand was closed. The adjustment should reduce the outstanding demand by the same amount; if it did not, you may be charged twice.
- Write to the proper officer with a date table showing why a demand was stayed, under appeal or not yet final. Many errors are corrected at this stage.
- Appeal the RFD-06 under section 107 within three months of communication if the officer does not correct it.
- Where the adjusted demand is later set aside in appeal, the amount adjusted becomes refundable. Our note on refund following an appellate order explains the fresh claim, and section 56 interest covers interest.
For the closely related situation where the refund is held back rather than set off, see refund withheld under section 54(10) and 54(11).
Need help with a refund adjusted against demand?
An adjustment against the wrong demand can quietly cost you both the refund and your appeal position. We can match each adjusted demand against its appeal and stay status, raise the correction with the officer, and appeal where needed. See our GST refund rejection and adjustment support, and for disputes on the underlying demand, our GST notices and litigation team. The GST refund hub lists every refund service.
Key takeaways
- Section 54(10)(b) allows deduction of unpaid dues from a refund only if they are unstayed after the appeal deadline.
- Today the adjusted amount appears in RFD-06 (Rule 92(1)); RFD-07 Part A/B is for withholding and release.
- Provisional refunds are not to be adjusted or withheld.
- A demand under appeal with pre-deposit is deemed stayed for the balance under section 107(7).
- Check the liability register so the adjusted demand is actually reduced.
Read next
- Refund withheld under section 54(10) and 54(11)
- Partial GST refund sanction in RFD-06
- RFD-05 payment order explained
- Rule 90–92: acknowledgement, deficiency and sanction
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.