GST Refund for Footwear Manufacturers: Complete Guide 2026

Are you a footwear manufacturer struggling with blocked GST credit every month? Due to the inverted duty structure (18% input vs 5% output), lakhs of rupees remain stuck in your electronic credit ledger. This guide explains how to claim your GST refund efficiently in 2026

GST New Rate Footwear Sept 2025: Notification 9/2025-CTR

• CBIC Notification 9/2025-CTR rationalised certain exemptions and clarified classification for composite footwear with multiple materials
• The notification reinforced that footwear classification is determined by the constituent material of the upper, not the sole
• Some flip-flop and rubber sandal categories saw clarification on the applicable HSN code
• Manufacturers selling below the Rs. 2,500 threshold must ensure MRP is clearly marked, as this determines the 5% rate applicability

What is the GST IDS Gap 5 Percent vs 18 Percent?

The GST IDS gap 13% is the most critical number for footwear manufacturers:

• Output GST on footwear: Most footwear below Rs. 2,500 MRP is taxed at 5%
• Input GST on raw materials: Rubber EVA soles, PU synthetic leather, adhesives, and chemicals are taxed at 18%
• An IDS refund 5% vs 18% means manufacturers pay 18% on inputs but collect only 5% on output
• The net gap of 13% accumulates in the Electronic Credit Ledger footwear account every month
• For a manufacturer buying Rs. 10 lakh of raw materials monthly, the monthly ITC accumulation can exceed Rs. 1.30 lakh
• This IDS refund 5% vs 18% scenario makes refund filing not just an option but a financial necessity.

GST Refund Eligibility For Footwear Manufacturers In India

Understanding eligibility conditions under the CGST Act is the first step before preparing a refund application.

Section 54(3)(ii) CGST Act IDS Refund Eligibility

• The manufacturer must have an inverted duty structure, meaning the input tax rate exceeds the output tax rate
• The refund is available on unutilised ITC at the end of the tax period
• All returns (GSTR-1, GSTR-3B) must be filed and up to date
• There should be no pending demand or recovery proceedings against the taxpayer
• The refund amount must be computed strictly as per the Rule 89(5) formula

Export-Based Refund Eligibility

• LUT export footwear GST allows zero-rated supply without payment of IGST, with refund of accumulated ITC
• IGST refund for the footwear exporter route involves payment of IGST on exports and claiming it back through the shipping bill
• Footwear export GST refund in India is processed through the customs-GST system automatically for the IGST refund route
• Exporters must choose between the LUT route and the IGST payment route and stick to it consistently
• Under the LUT route, RFD-01 must be filed on the GST portal for the accumulated ITC refund

Rule 89(5) Footwear Refund Formula

Refund Amount = (Turnover of inverted rated supply / Adjusted total turnover) x Net ITC - Tax payable on inverted rated supply

Worked Example Of ITC Reversal And Refund Calculation

Step-By-Step Process To File GST Refund, Footwear Manufacturers

• Log in to the GST portal at gstin.gov.in using your credentials
• Navigate to Services > Refunds > Application for Refund
• Select the refund type: choose IDS (inverted duty structure) or export with LUT, depending on your category
• Fill RFD-01 footwear filing form with the relevant tax period, turnover details, and ITC figures
• Compute the refund amount strictly using the Rule 89(5) formula
• Upload supporting documents, including GSTR-2B reconciliation, footwear reports, invoices, and a CA certificate if above Rs. 2 lakh
• Submit the application and note the ARN (Application Reference Number) for tracking

Timeline And Processing Stages

Documents Required For GST Refund for the Footwear Industry

Accurate documentation is essential for footwear businesses to ensure smooth GST refund processing and avoid delays or rejections.

Mandatory Documents Checklist

• Filed GSTR-1 and GSTR-3B returns for all months in the refund period
• GSTR-2B reconciliation footwear reports confirming ITC eligibility and matching with supplier returns
• Purchase invoices for all raw materials on which ITC is claimed
• Sales invoices matching the turnover declared in GSTR-1
• CA certificate refund above 2 lakh: A Chartered Accountant certificate in the prescribed format is mandatory when the refund claim exceeds Rs. 2 lakh
• Bank account details with a cancelled cheque or a bank certificate for the refund credit
• Self-declaration that the ITC has not been utilised and the incidence of tax has not been passed to the buyer
• Statement of invoices in Annexure B format

Additional Documents For Exporters

• Copy of the Letter of Undertaking (LUT) filed for the relevant financial year
• Shipping bills with details of FOB value and IGST amount
• Export invoices matching the shipping bill details
• Bank realisation certificate or FIRC for export proceeds, where applicable
• Copy of the order confirming the exported goods are footwear classified under HSN 6401 to 6405

Common GST Refund Rejection Reasons in the Footwear Sector

Managing Blocked ITC And Compliance in the Footwear Industry

Every rupee of blocked ITC incorrectly claimed reduces the eligible refund and exposes the manufacturer to demand notices.

Section 17(5) Blocked Credit In Footwear

Items not eligible for ITC in the footwear sector:

• Motor vehicles used for the transportation of goods (unless exclusively for business)
• Food and beverages are provided to staff
• Construction services for the factory building
• Club memberships and health insurance are not covered under the statutory obligation
• Personal use items purchased on business GST invoices

MSME Footwear ITC Claim Best Practices

• Maintain separate ledgers for input ITC, input services ITC, and capital goods ITC
• Conduct monthly GSTR-2B reconciliation to ensure all claimed credits are matched with supplier filings
• Review each invoice quarterly to identify and reverse any blocked ITC under Section 17(5)
• Use a checklist before filing each refund application to verify that all conditions under Section 54(3)(ii) are met
• Engage a qualified CA or GST professional for calculation review, especially for claims above Rs. 2 lakh requiring a CA certificate

How MYGSTRefund Helps Footwear Manufacturers With GST Refunds

MYGSTRefund automates GST refund calculation under the inverted duty structure for footwear manufacturers

• Simplifies filing with end-to-end refund processing and minimal manual effort
• Tracks refund status in real time for better cash flow visibility
• Provides reconciliation tools to ensure accurate ITC claims
• Identifies eligible refunds and reduces rejection risks
• Offers expert support for faster processing and compliance accuracy

Frequently Asked Questions

1. What Is GST Refund For Footwear Manufacturers?
GST refund refers to reclaiming unused ITC due to an inverted duty structure. Inputs are taxed at 18% while footwear is taxed at 5%.

2. What Is The GST Rate On Footwear In India In 2026?
Footwear up to Rs. 2,500 MRP attracts 5% GST, above that 12%. Raw materials like rubber and PU are taxed at 18%.

4. What Is Rule 89(5) In Footwear Refund?
Rule 89(5) provides the formula for the IDS refund calculation. It considers net ITC, turnover, and adjusted turnover.

5. What Is The IDS Gap In The Footwear Industry?
The IDS gap is the difference between input and output GST rates. Inputs are taxed at 18% while output footwear is taxed lower rate. 

6. Is ITC Allowed On Machinery In The Footwear Industry?
Yes, ITC is allowed on machinery as capital goods. However, it is excluded from the IDS refund calculation.

7. What Is RFD-01 In GST Refund Filing?
RFD-01 is the form used to claim GST refunds online. It includes details of ITC, turnover, and supporting documents.