The Central Government has notified significant changes to the GST refund framework, allowing eligible input service credit to be included in the calculation of refunds under the inverted duty structure from November 1, 2026. Credit attributable to eligible capital goods will also enter the refund calculation from April 1, 2027, subject to prescribed conditions.
Notification No. 05/2026–Central Tax, dated October 26, 2026, introduces the Central Goods and Services Tax (Amendment) Rules, 2026. Besides expanding the refund formula, the notification provides for faster acknowledgement of refund applications, system-generated provisional refund orders, a new registration option for e-commerce suppliers operating through warehouses in other States, and changes to registration amendment and cancellation procedures.
Most amendments take effect on November 1, 2026. Certain provisions have separate commencement dates in December 2026, January 2027 and April 2027.
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Input service credit brought into inverted duty refund formula
A major change is the substitution of Rule 89(5), which governs the calculation of refunds arising from an inverted duty structure.
The revised formula is:
Maximum Refund Amount = [(Turnover of inverted rated supplies of goods and services × Net ITC) ÷ Adjusted Total Turnover] − Tax payable on those inverted rated supplies.
Under the substituted provision, “Net ITC” includes input tax credit availed on inputs, eligible input services and capital goods attributable to the relevant period.
For input services, the notification expressly defines eligibility by reference to the date on which credit is availed. Input services qualify where the input tax credit has been availed on or after November 1, 2026.
The amendment therefore expands the credit base used for calculating inverted duty refunds. The amount refundable will continue to depend on the statutory formula, turnover figures and applicable eligibility conditions.
Capital goods credit to be included from April 1, 2027
The notification also amends Rule 89 to include credit attributable to capital goods in the refund calculations for zero-rated supplies without payment of tax and inverted rated supplies.
These capital goods provisions take effect on April 1, 2027 and apply to eligible credit availed on or after that date.
The credit will be attributed over a 60-month period beginning with the month in which it was availed. Broadly, the calculation takes one-sixtieth of the eligible capital goods credit for each qualifying month falling within the relevant refund period, after deducting applicable reversals.
Consequently, the amendment does not provide for refunding the entire capital goods credit in a single claim merely because the asset was purchased during that period.
Applicants including capital goods credit in their refund claims must also declare that the goods have not been sold, disposed of or permanently removed from the business, that the credit is eligible, and that the goods are being used for the relevant zero-rated or inverted rated supplies.
Export refund valuation restriction removed
With effect from November 1, 2026, the notification removes the restriction in Rule 89(4)(C) linking the value of zero-rated supplies of goods to 1.5 times the value of comparable goods supplied domestically by the same or a similarly placed supplier.
The deletion removes that specific domestic-value ceiling from the export turnover component of the refund formula. Refund claims remain subject to the other applicable valuation and eligibility requirements.
Refund applications to receive acknowledgement within 10 days
The amendments shorten the time available for scrutiny of refund applications under Rule 90 from 15 days to 10 days.
Within that period, the proper officer must either make an acknowledgement available in Form GST RFD-02 or communicate deficiencies in Form GST RFD-03.
If neither action occurs within 10 days of filing, the application will be deemed acknowledged, and the common portal will electronically make Form GST RFD-02 available to the applicant.
In such cases, the time period under Section 54(7) will be counted from the date of filing the refund claim. Deemed acknowledgement concerns processing of the application; it does not itself amount to final sanction of the refund.
System-generated provisional refund orders
The substituted Rule 91(2) provides for the common portal to generate a provisional refund order in Form GST RFD-04 on the basis of system identification and evaluation of risk.
The order must be generated within three working days from the relevant acknowledgement under Rule 90. The notification expressly states that the order will not require revalidation by the proper officer.
A corresponding amendment allows the payment order in Form GST RFD-05 to be made available through the common portal.
The notification also introduces a system-generated sanction order mechanism for refunds payable under Section 49(6), providing for adjustment against outstanding demands and identification of the balance refundable.
Prescribed order for debiting credit ledger
For refund applications involving input tax credit, the substituted Rule 89(3) prescribes the following debit sequence:
- Integrated tax credit must be debited first, to the extent available.
- Central tax and State or Union territory tax credit must then be debited equally, to the extent available.
- Where one of those two balances is insufficient, the differential amount must be debited from the other ledger.
The amendments also introduce additional invoice and credit-related statements and declarations for specified refund claims.
E-commerce sellers can obtain registration using an operator’s warehouse
The notification inserts Rule 14B, creating an optional registration route for eligible suppliers of goods through electronic commerce operators required to collect tax at source under Section 52.
A person already registered in a State or Union territory under Rule 9 may obtain registration under the same PAN in another State or Union territory where the person has no physical presence, by declaring an eligible e-commerce operator’s warehouse as the principal place of business.
The operator must consent to the declaration.
The option is subject to a monthly ceiling of ₹2.5 lakh in total output tax liability on the specified supplies to registered persons, excluding a registered person having the same PAN. This is a tax liability condition, rather than a turnover threshold.
The applicant must disclose the GSTIN of the State where it has a physical presence, described in the rule as the “home State”.
Operator consent and home-State verification required
Applications under Rule 14B must be filed in Form GST REG-01 and forwarded to the relevant e-commerce operator for consent.
The operator may communicate consent within seven working days. If consent is not given within that period, the application will not be processed further.
Following consent, biometric-based Aadhaar authentication, document verification and physical verification of the home-State principal place of business are required where these have not already been successfully completed.
Where the prescribed authentication, document verification and physical verification have already been completed for the home-State registration, registration under the new route will be granted electronically upon receipt of the operator’s consent.
The rule also provides for deemed approval where the proper officer fails to conduct physical verification within the prescribed 30-day period following generation of the application reference number after successful authentication and document verification.
Persons registered under this route are exempted from displaying their registration certificate and GSTIN on the name board at the operator’s warehouse. The rule nevertheless retains record-production obligations and requires the operator to appoint an authorised representative in each State or Union territory for arranging and providing the required information.
Registration amendments move towards online validation
The notification substitutes Rule 19 governing amendment of registration particulars.
Applications must generally be submitted in Form GST REG-14 within 15 days of the change.
Changes to the principal place of business ordinarily require examination by the proper officer. The substituted rule prescribes timelines for approval, clarification and rejection, along with deemed amendment where the officer does not act within the applicable period.
For particulars other than the principal place of business, the certificate will stand amended upon submission of the application and completion of the required online validation.
A separate provision allowing principal-place amendments for qualifying Rule 14A registrants through online validation takes effect on December 1, 2026.
Taxpayer-requested cancellation procedure revised
The substituted Rule 20 introduces a revised framework for cancellation sought by taxpayers, including electronic cancellation through the common portal in specified cases, subject to return filing, payment and other prescribed conditions.
Applications requiring examination by the proper officer will be governed by specified timelines for notices, replies and decisions. The rule also provides for deemed approval where the officer fails to act within the prescribed period.
A separate procedure governs proposals to move an already determined cancellation date to an earlier date. It requires notice and an opportunity to reply, and provides for proceedings to be deemed dropped if the prescribed order is not issued within 60 days of the notice.
Once the effective cancellation date is changed under that procedure, it cannot be changed again under the rule.
System cancellation and revocation framework from April 2027
From April 1, 2027, substituted Rules 21A and 22 will introduce a framework for electronic suspension and cancellation in specified cases, including prescribed return-filing defaults and non-compliance with bank account requirements under Rule 10A.
The taxpayer will receive an electronic intimation requiring compliance within 30 days. Failure to rectify the relevant default within the prescribed period may lead to deemed cancellation through the common portal.
New Rule 23A will allow a person whose registration is electronically cancelled under Rule 22(5) to apply for revocation within 180 days of cancellation.
The applicant must first furnish the pending returns and pay the applicable amounts, or furnish the required bank account details, depending on the default. Upon the prescribed compliance, the application will be deemed approved and cancellation revoked electronically.
Formal objection mechanism for blocked ITC
From April 1, 2027, the notification introduces dedicated forms for restrictions on debit from the electronic credit ledger under Rule 86A.
Form GST DRC-26 will record the restriction order, Form GST DRC-27 will enable the taxpayer to file objections, and Form GST DRC-28 will record the decision on those objections.
The prescribed decision form provides for consideration of the objection and a reasonable opportunity of hearing, followed by restoration of debit or rejection of the objection with reasons.
Other compliance changes
The notification also amends provisions and forms concerning Input Service Distributors, composition taxpayers, GST practitioners, refund documentation, provisional attachment and demand proceedings.
Revised Form GST CMP-08 separately identifies services supplied through e-commerce operators where the operator is liable to pay tax under Section 9(5). Its instructions clarify that composition taxpayers need not discharge tax on those supplies, although the supplies must be included in annual aggregate turnover.
The e-invoice schema in Form GST INV-01 will move from Version 1.1 to Version 1.2 from January 1, 2027, with additional supply-type codes.
For businesses, the refund amendments make the dates on which input service and capital goods credit are availed particularly relevant. Taxpayers will also need to account for the separate commencement dates when preparing refund claims and updating registration and compliance processes.
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