GST Refunds May Become Easier: Decoding the Refund Reforms of the 57th GST Council Meeting

For a Hyderabad exporter of software services in HITEC City, or a pharma unit selling largely overseas, a GST refund is working capital that is held up. The GST refund reforms recommended at the 57th GST Council meeting on 8 October 2026 aim to release that money faster, with less officer interface and fewer blocked credits.

1. Where do GST refunds stand today?

Refunds are governed by section 54 of the CGST Act, 2017 and rules 89 to 97A of the CGST Rules. In brief:

• The claim is filed in FORM GST RFD-01 with supporting documents.
• The proper officer issues an acknowledgement (RFD-02) or a deficiency memo (RFD-03) within 15 days (rule 90).
• For zero-rated supplies, 90% provisional refund is available under section 54(6) and rule 91. From 1 October 2025, rule 91(2) (Notification No. 13/2025-Central Tax) provides for provisional sanction on the basis of system risk evaluation. Instruction No. 06/2025-GST dated 03.10.2025 extended this, as an interim measure, to inverted duty claims filed on or after 1 October 2025, pending amendment of section 54(6).
• The final order is due within 60 days of receipt of the complete application (section 54(7)). Interest on delay is payable under section 56.
• For inverted duty claims, rule 89(5) counts only ITC on inputs. Input services and capital goods are excluded. The Supreme Court upheld this in Union of India v. VKC Footsteps India Pvt. Ltd. (2021).

Even under the 2025 risk-based mechanism, the proper officer issues the provisional order and may, for reasons recorded in writing, withhold it. The 57th meeting proposes to take the officer out of these routine steps.

2. What changes in Phase 1 and Phase 2 of the GST refund reforms?

Step	Present	Phase 1	Phase 2
Excess cash ledger balance	Processed by the officer	Full refund sanctioned by the system, no officer intervention	—
Acknowledgement / deficiency memo	Within 15 days	Within 10 days; deemed acknowledgement if not issued	Automated, on system verification
Zero-rated supplies	90% provisional (low-risk claims) by officer order	90% provisional sanctioned by the system, risk-based	Full refund sanctioned by the system after adjusting pending dues, risk-based
Inverted duty structure	90% provisional (interim, by Instruction)	90% provisional sanctioned by the system, risk-based	Not specified in the release
RFD-01 documents	Scanned uploads	System-readable data; no scans for zero-rated and inverted duty claims

Our analysis of these GST refund reforms:

1. Cash ledger refunds are the simplest gain. Excess deposits, typically after a wrong head of payment or an over-payment, should be refunded without officer interface.
2. Deemed acknowledgement addresses claims kept pending without an RFD-02 or RFD-03. Since the 60-day period in section 54(7) and interest under section 56 run from receipt of a complete application, how the deemed acknowledgement is linked to these timelines will matter. Position requires verification once the amendment is notified.
3. Risk-based means not universal. Claims flagged as risky are likely to continue through officer scrutiny. Clean, reconciled returns become a practical condition for faster refunds.
4. Phase 2 adjustment of “pending dues” is new for zero-rated claims. Section 54(10) presently allows withholding or deduction of unpaid amounts that have not been stayed by an appellate forum. Taxpayers will want the system logic to follow the same safeguards.

3. Refund of ITC on input services and capital goods

The Council recommended amending clause (ii) of the proviso to section 54(3) and the Rules to allow:

ITC on	Zero-rated supplies	Inverted duty structure	Eligible ITC
Input services	Already part of Net ITC under rule 89(4)	Newly allowed	Availed on or after 1 November 2026
Capital goods	Newly allowed	Newly allowed	Availed on or after 1 April 2027; spread over 60 months

In the illustration above, a manufacturer with ₹3 lakh of input-service ITC in a period could see its refund rise from ₹8 lakh to ₹10 lakh, if the present rule 89(5) formula is retained and “Net ITC” is widened to include input services. The actual formula will be known only when the Rules are amended.

Points to note:

• Prospective only. Input-service ITC before 1 November 2026, and capital goods ITC before 1 April 2027, are outside the recommendation.
• Statutory amendment needed. Section 54(3) is in the Act, so Parliament must amend it. How the 1 November 2026 date will be given effect is yet to be seen.
• Capital goods mechanics. The 60-month spread raises questions on period-wise attribution, assets sold or put to exempt use, and the interaction with rule 43. These await the Rules.

4. Four other refund fixes

Provision	Issue today	Recommended
Rule 89(4)(C)	Since 23.03.2020 (Notification No. 16/2020-CT), turnover of zero-rated goods is capped at 1.5 times the value of like goods supplied domestically. The Karnataka High Court held the rule ultra vires in 2023.	Cap to be removed
Section 54(14)	No refund below ₹1,000; whether per tax head or in total was unclear	Explanation: threshold applies to total of CGST, SGST/UTGST and IGST
Section 115	Interest on refund of pre-deposit is linked to the rate under section 56; the applicable rate (6% or 9%) has been disputed	Standalone provision on rate of interest, plus a circular
FORM GST RFD-01	Scanned statements and documents	System-readable format; no scans for zero-rated and inverted duty claims

5. Changes for exporters that affect refunds

Four export-related recommendations widen the base of refundable claims:

1. Section 2(6)(v), IGST Act to be omitted. Services by an Indian establishment to its own foreign office or branch (distinct persons under Explanation 1 to section 8) can then qualify as export, opening the refund route. Indian subsidiaries of foreign companies were already clarified as outside this restriction by Circular No. 161/17/2021-GST. This is relevant for Indian branch offices in Hyderabad’s Financial District and HITEC City that render services to their overseas head office or group branches.
2. Section 13(3)(a), IGST Act to be omitted. For services on goods made physically available by the recipient, the place of supply will be the recipient’s location under section 13(2).
3. Explanation to section 16(1), IGST Act. Goods delivered to an overseas buyer within an SEZ or FTWZ (Free Trade Warehousing Zone), paid for in convertible foreign exchange or in INR where permitted by RBI, will be deemed a supply to the SEZ/FTWZ. This gives certainty on zero-rating.
4. Circular on export proceeds received in foreign exchange or INR, as permissible.

Separately, rule 96(10) is to be omitted with effect from 23.10.2017, in line with the Supreme Court’s decision; a circular is awaited. Note that refunds of IGST paid on export of goods under rule 96 are processed through the customs system, and the release does not otherwise discuss that route.

6. Open issues in the GST refund reforms: a litigation view

Issue	Taxpayer’s view	Likely departmental view	Risk
Input-service ITC for periods before 1.11.2026	Policy now accepts the anomaly	Prospective by design; VKC Footsteps upholds the exclusion	High
Pending rejections under rule 89(4)(C)	Rule already held ultra vires by the Karnataka High Court; removal confirms	Removal applies only from notification	Moderate
₹1,000 threshold for past claims	Explanation is clarificatory, so applies to pending claims	Applies prospectively	Low
Withholding of risk-flagged claims	Reasons and a notice in RFD-08 (rule 92(3)) are needed before any rejection	Risk flag justifies detailed scrutiny	Moderate
Adjustment of pending dues (Phase 2)	Only dues not stayed, as under section 54(10)	All confirmed dues may be adjusted	Moderate

Risk levels are indicative professional views, not predictions of outcome. Position requires verification once the amendments are notified.

7. What should refund claimants do now?

1. Keep filing under the present law. Recommendations are not operative until notified. Watch the two-year limitation under section 54(1).
2. Reconcile GSTR-1, GSTR-3B and GSTR-2B every month. A clean record is the best preparation for risk-based system sanction.
3. Separate input-service ITC from 1 November 2026 in your books, so that future inverted duty claims can be supported.
4. Set up an asset-wise capital goods ITC register from 1 April 2027 to track the 60-month spread.
5. Structure your refund data (invoices, shipping bills, export realisation) for a system-readable RFD-01.
6. Review pending matters: claims rejected under rule 89(4)(C) or for being below ₹1,000 in one tax head, and pre-deposit refunds where interest is due.
7. Service exporters with foreign branches: map affected transactions, but take a refund position only after the IGST Act amendment.

For the complete list of 57th GST Council recommendations, see our article 57th GST Council Meeting Highlights.

Frequently asked questions

Will GST refunds be sanctioned without an officer after the 57th GST Council meeting?

For excess cash ledger balance, yes, as recommended. For zero-rated and inverted duty claims, Phase 1 provides 90% provisional sanction by the system on risk evaluation; Phase 2 provides full system sanction for zero-rated claims. All of this awaits amendment of the law.

From when can ITC on input services be included in an inverted duty refund?

The Council has recommended this for ITC on input services availed on or after 1 November 2026. It requires amendment of section 54(3) of the CGST Act and rule 89(5).

Is ITC on capital goods refundable for exporters?

It has been recommended for zero-rated and inverted duty refunds, for ITC availed on or after 1 April 2027, spread over 60 months.

Is the 1.5 times cap under rule 89(4)(C) removed?

The Council has recommended its removal. Until the rule is amended, it remains on the statute, although the Karnataka High Court held it ultra vires in 2023.

How does the ₹1,000 minimum refund rule work?

The Council has recommended an Explanation to section 54(14) that the ₹1,000 threshold applies to the total refund of CGST, SGST/UTGST and IGST taken together.

What is the time limit for acknowledging a refund claim?

At present it is 15 days under rule 90. The Council has recommended 10 days, with deemed acknowledgement if the officer does not act within that time.

In case of queries, kindly write to gst@arpanbohra.co.in or call 9010558981.

Arpan Bohra & Co., Chartered Accountants
Himayat Nagar, Hyderabad, Telangana
www.arpanbohra.co.in