Cash flow management with refund of accumulated GST Input Tax Credit (ITC)

Client Industry : IT company engaged in software sale

Background :

The client was a wholly owned subsidiary of an overseas foreign entity and was engaged in the sale of software in India. The company had revenue from sale of software in India aw well as from business support services to its foreign parent entity. Since the client was a company incorporated just a year back, the business of sale of software was in initial stage and the company’s major source of revenue was providing business support services to its foreign parent entity, which is export of services and hence exempt from GST under LUT. Since the company’s major revenue was exempt from GST, the company had huge accumulated GST ITC which in turn was causing adverse impact on cash flow of company. The company outsourced whole of its accounting function including financial functions to IBA. On the basis of study of audited financial and books of accounts, we came to know about blockage of company’s fund as accumulation of GST input credit and discussed with the management. The management of the company approached IBA to help him to utilise this accumulated GST input credit.

Our Approach :

• Once the accounting function outsourced to IBA, we had a discussion with the management and reviewed the financials to understand the revenue model of the company
• We studied agreement entered into between client and foreign parent entity
• We explored possible options under GST law to claim refund of huge accumulated GST ITC and discussed with management of company
• With the help of our indirect tax team we prepared detailed analysis of input-output co-relation considering sales forecast and estimated output liability to be settled against accumulated input credit
• After detailed analysis, we calculated eligible amount of GST refund as per ITC rules
• We filed GST RFD-11 with GST department and also filed physical copy of GST RFD-11 along with other documents with GST department
• Our team constantly followed-up the matter and regularly visited GST department and helped the client to get GST refund with in prescribed time

Outcome/Impact

The client was able to get refund of huge accumulated GST ITC in a seamless manner and with in prescribed time based on the option recommended by us and thus improvement in cash flow position of the company.