Providing much-needed relief to taxpayers facing delays in refund processing, the 56th GST Council chaired by Union Finance Minister Nirmala Sitharaman has recommended a major reform in refund mechanisms under the GST law.
The Council has proposed an amendment to Section 54(6) of the Central Goods and Services Tax (CGST) Act, 2017, to enable risk-based provisional sanction of refunds arising from Inverted Duty Structure (IDS). Under the proposed change, 90% of the refund claimed in IDS cases will be sanctioned on a provisional basis, similar to the treatment already available for zero-rated supplies such as exports.
Until the statutory amendment is carried out, the Central Government has decided to implement the reform through administrative instructions. The Central Board of Indirect Taxes and Customs (CBIC) will issue directives to Central Tax field formations, ensuring provisional refund disbursement of up to 90% of the claimed amount in IDS cases. The system will rely on risk identification and evaluation, in line with existing procedures for zero-rated refunds.
This measure will become operational from November 1, 2025.
Tax experts believe this step will ease working capital pressures on industries impacted by the inverted duty structure, particularly sectors like textiles, footwear, and fertilizers, where input tax rates are higher than output tax rates. By ensuring quicker refunds, the move is expected to improve cash flows for businesses and enhance ease of doing business under GST.
The decision is seen as part of the government’s broader efforts to streamline refund processes, reduce compliance bottlenecks, and make GST more taxpayer-friendly.
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