Last reviewed: 13 November 2026. Exporters who supply under a Letter of Undertaking pay no IGST at the time of export, so the credit on their purchases piles up. Section 54(3)(i) lets them claim that unutilised credit back, using the formula in rule 89(4). The formula is simple to state and easy to get wrong, and from 1 November 2026 it changed: the 1.5-times domestic value cap on goods is gone, debits follow a fixed order, and capital goods are due to enter the formula from April 2027.
Part of our GST refund series. For every refund category, the common process, time limits and interest, start with the complete GST refund guide.
The rule 89(4) formula
Refund amount = (Turnover of zero-rated supply of goods + zero-rated supply of services) × Net ITC ÷ Adjusted total turnover
| Term | Meaning under rule 89(4) |
|---|---|
| Net ITC | Input tax credit on inputs and input services availed in the relevant period, excluding credit already refunded under other routes. Capital goods are excluded today; credit on capital goods availed on or after 1 April 2027 enters at 1/60 per month |
| Turnover of zero-rated supply of goods | Value of goods exported without payment of tax in the period, taken as the lower of the FOB value in the shipping bill and the value in the tax invoice. From 1 November 2026, the cap of 1.5 times the value of like goods supplied domestically no longer applies |
| Turnover of zero-rated supply of services | Payment received during the period for services exported in that or an earlier period, plus advances received for services completed in the period, less advances for services not yet completed |
| Adjusted total turnover | Total turnover in the State, excluding exempt supplies other than zero-rated supplies, and computed for the relevant period |
Worked example
A Thane-based manufacturer exports under LUT and also sells in India. For April to June 2026:
| Item | ₹ |
|---|---|
| Export turnover (lower of FOB and invoice value) | 1,20,00,000 |
| Domestic taxable turnover | 80,00,000 |
| Adjusted total turnover | 2,00,00,000 |
| Net ITC on inputs and input services | 18,00,000 |
| Refund = 1,20,00,000 × 18,00,000 ÷ 2,00,00,000 | 10,80,000 |
| Provisional refund at 90% | 9,72,000 |
The claim cannot exceed the balance in the credit ledger at the end of the period or at the time of filing, whichever is lower. The amount is debited from the credit ledger at filing in the order now set by rule 89(3): IGST first, then CGST and SGST in equal amounts, with any shortfall in one taken from the other.
Documents and statements
- Valid LUT in RFD-11 for the financial year in which the exports were made.
- Invoice-wise statement of exports with shipping bill or bill of export numbers and dates, and for services, the BRC, FIRC or bank realisation details.
- Statement of invoices on which Net ITC is claimed (required in the substituted RFD-01 from 1 December 2026).
- Reconciliation of GSTR-1, GSTR-3B and the export data for each month in the claim.
- Declarations under rule 89(2), including, from 1 December 2026, a declaration about prosecution for tax evasion exceeding ₹2.5 crore in the preceding five years.
Common reasons for reduction or rejection
- Net ITC includes blocked credit under section 17(5), capital goods, or credit not reflected in GSTR-2B.
- Export turnover taken at invoice value where the FOB value in the shipping bill is lower.
- Services turnover taken on an invoice basis instead of the receipt basis the rule requires.
- Adjusted total turnover computed for the year instead of the relevant period of the claim.
- LUT not filed, or filed late, for the year of export.
A detailed list of fixes is in our note on refund deficiency memos and rejections.
LUT or payment of IGST?
| Point | Export under LUT | Export with IGST |
|---|---|---|
| Cash at shipment | No tax paid | IGST paid, usually from credit |
| Refund route | RFD-01 under rule 89(4) | Goods: shipping bill under rule 96. Services: RFD-01 |
| Amount refunded | Formula-based share of Net ITC | IGST actually paid |
| Capital goods credit | Excluded until 1 April 2027 | Can be used to pay IGST and is refunded through it |
| Suitable where | Credit is modest relative to exports | Credit is large, including capital goods |
For the IGST route see our guide on refund of IGST paid on exports.
Frequently asked questions
What is the formula for refund of ITC on exports under LUT?
Under rule 89(4), refund equals the turnover of zero-rated supplies multiplied by Net ITC and divided by adjusted total turnover, all for the relevant period. The amount is limited to the credit ledger balance.
Is the 1.5 times domestic value limit still applicable?
No. Notification 05/2026-Central Tax omitted the restriction in rule 89(4)(C) with effect from 1 November 2026, so export turnover is taken at the lower of FOB and invoice value without that cap.
Is ITC on capital goods refundable for exports under LUT?
Not yet. Rule 89(4) excludes capital goods today. For credit on capital goods availed on or after 1 April 2027, the amended rule brings it into the refund calculation at one-sixtieth for each month.
How is export of services turnover counted for the refund?
On a receipt basis: payments received in the period for services completed in that or an earlier period, plus advances received for services completed in the period, less advances for services not yet completed.
Can I claim refund of ITC if I exported without an LUT?
An export without payment of tax requires an LUT or bond. If the LUT was not furnished, the department may treat the supply as taxable. CBIC has in the past allowed condonation of LUT delays where the exporter was otherwise eligible, so the facts should be reviewed before filing.
In what order is the credit ledger debited for the refund?
From 1 November 2026, rule 89(3) requires the debit to be made first from IGST, then equally from CGST and SGST, with any shortfall in one of those two taken from the other.
We review eligibility, build the computation and reconciliations from your books and returns, file the RFD-01, and handle deficiency memos, show cause notices and appeals until the claim is closed. The outcome rests with the proper officer; our work is to put a complete, defensible claim in front of them.
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This article is for general information and does not constitute advice on any specific case. Sources: sections 54 to 56 and 77 of the CGST Act, 2017; rules 89 to 97 of the CGST Rules, 2017 as amended by Notification No. 05/2026-Central Tax dated 26 October 2026; Notification No. 03/2026-Central Tax; CBIC circulars cited in the text. Rules, forms and portal functionality change; confirm the current position on the CBIC tax repository and the GST portal before filing. Firm details: Somesh Chandak & Associates, Chartered Accountants, Unit 119, 1st Floor, Centura Square IT Park, SG Barve Road, Wagle Estate, Thane West 400604. FRN 158694W.