Executive Summary

CBIC Circular No. 263/09/2026-GST clarifies the treatment of export proceeds that are written off by Authorized Dealer (AD) Banks. The circular details how and when GST authorities can recover previously granted export refunds if the foreign exchange realization is officially set-off or written off under FEMA guidelines, ensuring exporters are not unfairly penalized for genuine international trade defaults.

Background

Under GST law, the refund of unutilized Input Tax Credit (ITC) or IGST paid on exports is contingent upon the realization of export proceeds within FEMA timelines. When foreign buyers defaulted, the RBI permitted AD banks to write off the unrealized export bills. However, GST officers routinely demanded the reversal of export refunds in such write-off scenarios, causing friction for exporters facing genuine bad debts.

What Has Changed

Refund Reversal on Write-Off: Circular 263 clarifies that GST refund recovery will not be triggered where export proceeds are written off with approval from the RBI or Authorised Dealer (AD) Bank.

Set-off Adjustments: The circular recognises adjustments of export proceeds against import payables as valid realisation under FEMA, removing the earlier practice of treating such adjustments as non-realisation.

Key Provisions

• RBI Approved Write-Offs: If an AD Bank or the RBI officially permits the write-off of unrealized export proceeds, GST authorities cannot demand the reversal of the related GST export refund.

• Valid Set-Offs: If export receivables are set-off against import payables to the same overseas entity (as permitted by RBI), it is considered a valid realization for GST refund purposes.

• Fraud Exception: The protection does not apply if the write-off is found to be part of a fraudulent scheme or circular trading.

Applicability

• Covered Entities: Exporters of goods and services, Authorized Dealer (AD) Banks, and tax practitioners.

Practical Implications

• Working Capital Protection: Exporters facing global buyer defaults will not suffer a double blow of losing the invoice value and having their GST refunds forcibly recovered.

• Inter-Company Settlements: MNCs can seamlessly utilize import-export set-offs without jeopardizing their GST refund eligibility.

What Should We Do

• Align Bank Documentation: Ensure all export write-offs are strictly documented and certified by the AD Bank in accordance with FEMA regulations.

• Respond to Notices: Use Circular 263 to defend against any active GST notices demanding refund reversals on officially written-off export bills.

KGS Perspective

By aligning GST refund eligibility with RBI's commercial write-off and set-off frameworks, the CBIC has bridged a major disconnect between tax and banking regulations. Exporters must maintain flawless FEMA compliance documentation to utilize this GST safe harbor.

Conclusion

Circular 263 provides crucial protection to exporters dealing with global bad debts, ensuring that valid banking write-offs are respected by GST authorities.

Regulatory Reference

• Regulator: Central Board of Indirect Taxes and Customs (CBIC)

• Notification / Circular / Regulatory Reference: Circular 263/09/2026-GST [Dated 26 October 2026]

• Official Document Link: [https://www.cbic.gov.in](https://www.cbic.gov.in)