The Sales Tax Rules, 2006, as updated for Tax Year 2026, clearly define the eligibility, scope, and procedure for claiming sales tax refunds on zero-rated supplies and non-zero-rated (taxable) supplies under Rule 33 and Rule 34. Understanding the distinction is critical to avoid claim rejections and audit issues.
🔹 Refunds Against Zero-Rated Supplies (Rule 33)
What Qualifies as Zero-Rated Supplies?
Zero-rated supplies generally include exports and other supplies notified under the Sales Tax Act, where output tax is charged at 0%.
Refund Entitlement
Under Rule 33, refund against zero-rated goods is allowed only to the extent of input tax actually consumed in:
• Purchases, or
• Imports
used in the manufacture or supply of such zero-rated goods.
👉 Key Insight:
Input tax not directly attributable to zero-rated supplies is not refundable.
🔹 Refunds of Excess Input Tax on Non-Zero-Rated Supplies (Rule 34)
Refunds related to taxable (non-zero-rated) supplies are more restrictive and allowed only in specific cases.
✅ Who Can Claim Refund of Excess Input Tax?
🏭 Category 1: Sector-Specific Entities
The following may claim refunds in any tax period where input tax exceeds output tax:
• Gas transmission and distribution companies
• Fertilizer manufacturers
• Cotton ginners
• Electric power producers
• Electric power distribution companies
📊 Category 2: Section 8B Adjustment Restriction (90% Rule)
Registered persons unable to adjust more than 90% of output tax due to Section 8B may claim refunds:
• Companies (audited): After end of accounting year
• Other registered persons: After end of financial year
⏳ Category 3: Other Registered Persons
Registered persons not covered above may claim refund if:
• Excess input tax remains unadjusted for a minimum consecutive period, including prior-period credits
📝 How to File Refund Claims (Rule 34)
Step-by-Step Process
📌 Step 1: File Sales Tax Return
Submit the return in which the refund is claimed.
📌 Step 2: Submit Refund Application
File electronic refund claim in Form STR-7A within the time limit prescribed under Rule 28.
📎 Additional Requirement (If Applicable):
Upload a statement with annual audited accounts under Section 8B(2) of the Act.
🔍 Audit & Sanction of Refunds
🧾 Pre-Refund Audit (Mandatory)
Refund claims under:
• Section 8B restriction cases, and
• Other general cases
are sanctioned only after a departmental audit, certifying that:
• Actual value addition does not require net tax payment
🔄 Post-Refund Audit (Specific Cases)
In certain notified cases, a post-refund audit is conducted after the close of the financial year to verify value addition.
⚠ Critical Compliance Requirements
✔ Input tax claimed in refund must not appear as outstanding credit in subsequent returns
✔ Refund cannot be claimed twice under any other notification or scheme
✔ Proper documentation and record maintenance is essential to avoid objections
🎯 Key Takeaway for Taxpayers
For Tax Year 2026, sales tax refunds:
• Are straightforward for zero-rated supplies, but strictly consumption-based
• Are conditional and audit-driven for non-zero-rated supplies
• Require timely filing, correct classification, and compliance with Section 8B
📌 Pro Tip: Accurate segregation of input tax between zero-rated and taxable supplies can significantly speed up refund approval.
Disclaimer: This article is intended for general informational purposes only and does not constitute legal, tax, or professional advice. The interpretation of Sales Tax Rules, 2006 (as updated for Tax Year 2026) may vary based on facts and official notifications. Taxpayers should consult the relevant law, FBR guidelines, or a qualified tax professional before filing any sales tax refund claim.