GST refunds from November 2026: the new rules, formulas and worked examples

Reviewed 30 October 2026 · GST

The Central Goods and Services Tax (Amendment) Rules, 2026 (Notification No. 05/2026–Central Tax dated 26 October 2026) rewrite a large part of the refund procedure in rules 89 to 92 of the CGST Rules, 2017. They follow the recommendations of the 57th meeting of the GST Council held on 8 October 2026, which the Council explained in its FAQs on the meeting's recommendations.

The changes touch every refund of unutilised input tax credit (ITC), whether the credit has built up because of exports and other zero-rated supplies or because of an inverted duty structure. Some change the procedure: who acknowledges the claim, how fast, and who grants the provisional refund. Others change the arithmetic: what counts as "Net ITC" and how the inverted duty formula works. This guide takes each change in turn, with worked examples.

At a glance

The GST Council's FAQs describe the procedural changes as coming in two phases, "as per readiness of the system". Phase I covers the faster acknowledgement, the automated 90% provisional refund for low-risk claims and the automated refund of cash ledger balances. Phase II adds automatic acknowledgement after system validation, and automatic final refund for low-risk zero-rated claims. No date has been notified for Phase II.

The law in brief

• Section 54(1) of the CGST Act: a refund is claimed by application within two years from the relevant date.
• First proviso to section 54(3): refund of unutilised ITC is allowed in two cases: (i) zero-rated supplies made without payment of tax, and (ii) where credit accumulates because the rate of tax on inputs is higher than the rate of tax on output supplies (the "inverted duty structure"), other than nil-rated or fully exempt supplies and goods notified as ineligible.
• Section 54(6): in claims for refund on account of zero-rated supply or of unutilised ITC under the inverted duty structure, 90% of the amount claimed may be refunded on a provisional basis, except for categories of persons notified by the Government.
• Section 54(7): the final order is to be issued within 60 days from the date of receipt of an application complete in all respects.
• Section 54(14): no refund is paid if the amount is less than ₹1,000, except a refund of tax on goods exported out of India with payment of tax.
• Section 56: interest is payable if the refund is not made within 60 days of receipt of the application.
• Section 16 of the IGST Act: the basis of zero-rating for exports and supplies to SEZ units and developers.

Part 1: the new procedure

Filing

Before filing, all returns due on or before the date of the application must have been filed. The Council's example: an application filed on 3 April 2026 needs the return for February 2026 to have been filed (FAQ 20).

Rule 89(1) and (1A) no longer mention filing "through a Facilitation Centre". Applications are filed directly on the common portal. Nothing is to be submitted physically to the jurisdictional officer, and invoices are not to be attached (FAQs 21 and 23; para 36 of Circular No. 125/44/2019-GST).

On filing, the applicant debits the claimed amount from the electronic credit ledger in the order now fixed by rule 89(3) (see Part 2).

Acknowledgement within 10 days, or deemed acknowledgement

For every refund other than a refund of cash ledger balance, the proper officer must, within 10 days of filing, either:

• issue an acknowledgement in FORM GST RFD-02 if the application is complete; or
• issue a deficiency memo in FORM GST RFD-03 (rule 90(2) and (3)).

If neither is issued in 10 days, the application is deemed acknowledged. The portal makes an RFD-02 available showing the date of filing, and the 60 days under section 54(7) run from that date (new rule 90(3A)).

Three points the Council's FAQs make clear:

• Deemed acknowledgement is not approval. It only means the application is treated as received and complete, so that the processing timeline starts. The claim is then processed under the risk-based framework (FAQ 13).
• No deficiency memo after acknowledgement. Once an RFD-02 has been issued, actual or deemed, no deficiency memo can be issued on any ground for that application (FAQ 15).
• A deficiency memo ends that application. The applicant must correct the deficiencies and file a fresh RFD-01 for the same period. The amount debited from the credit or cash ledger is re-credited automatically once the memo is issued (FAQ 14). Under the proviso to rule 90(3), the time from filing the original application to the date of the deficiency memo is excluded from the two-year limit in section 54(1).

Provisional refund: 90% by the system for low-risk claims

For claims on account of zero-rated supplies and the inverted duty structure, rule 91(2) now provides that the common portal, on the basis of risk identified and evaluated by the system, generates the provisional refund order in FORM GST RFD-04 within three working days of the acknowledgement (actual or deemed). The RFD-04 does not need revalidation by the officer. Earlier, the proper officer issued the RFD-04 within seven days.

According to the FAQs (FAQs 3, 7 and 9):

• For a low-risk claim, 90% of the amount claimed is sanctioned provisionally by the system, with no officer involved at that stage. The claim then goes to the proper officer for scrutiny and the final order in RFD-06.
• A claim not classified as low-risk is scrutinised by the proper officer after acknowledgement, both for the provisional refund and for the final refund (FAQ 10).

Who does not get the automated provisional refund (FAQ 4):

• persons in notified categories dealing in commodities such as areca nuts, pan masala, tobacco and manufactured tobacco substitutes, and essential oils;
• any person who has not undergone Aadhaar authentication under rule 10B of the CGST Rules (see Notification No. 14/2025–Central Tax dated 17 September 2025);
• cases where a DRC-01 has been issued against an RFD-06, where an APL-03 has been filed without a corresponding APL-04, or where an APL-07 has been filed against an appellate order and the APL-04 is yet to be issued.

Rule 91(1) continues to deny provisional refund to a person prosecuted, in the five years before the tax period of the claim, for an offence where the tax evaded exceeds ₹250 lakh.

Final refund and payment

The proper officer issues the final order in FORM GST RFD-06. Rule 92(4), as substituted, now also covers amounts determined by the common portal. The payment order in FORM GST RFD-05 is issued and the amount credited to a bank account in the registration particulars that is specified in the application. Under rule 91(3), the payment order for a provisional refund "may be made available through the common portal".

Refund of excess cash ledger balance: fully automated

New rule 92(1B) provides that where a refund of the balance in the electronic cash ledger under section 49(6) is due, the common portal generates the RFD-06. It shows the amount adjusted against any outstanding demand and the balance refundable. The FAQs confirm there is no officer involvement in such refunds (FAQs 18 and 19).

Interest

• If a refund is not sanctioned within the statutory time, interest on delayed refund is payable for the period of delay beyond 60 days under section 56 (FAQ 16).
• Where a refund is withheld under section 54(11) and the applicant later becomes entitled to it through an appeal or other proceedings, interest is payable at 6%, from the date the refund was withheld to the date it is paid (FAQ 27).

Phase II

When the system is ready (no date notified), the FAQs indicate:

• The system will acknowledge applications automatically after validating the information. Errors will be communicated so that a fresh application can be filed. If validation fails again, the application goes to the proper officer.
• For low-risk zero-rated claims, the final refund will also be granted by the system.
• For inverted duty claims, 90% will be sanctioned provisionally by the system, with RFD-05 issued. The officer then does the final scrutiny.
• Shipping bill and bill of export details will be checked against ICEGATE, realisation of export proceeds for services against the RBI's EDPMS, and supplies to SEZs against SEZ Online (FAQ 24).

Part 2: debiting the credit ledger (rule 89(3))

When the refund relates to ITC, the applicant debits the electronic credit ledger by the amount claimed in this order:

1. Integrated tax, to the extent of the balance available;
2. then central tax and State/UT tax equally, to the extent of the balances available;
3. if one of those two ledgers runs short, the shortfall is debited from the other.

Worked example 1 (illustration prepared by us)

Refund claimed: ₹10,00,000. Balances: integrated tax ₹4,00,000, central tax ₹2,00,000, State tax ₹5,00,000.

Rule 86(3) has been amended to say that the amount is debited "in the manner as prescribed in sub-rule (3) of rule 89".

Part 3: refunds for exports and other zero-rated supplies (rule 89(4))

For zero-rated supplies made without payment of tax under bond or LUT:

Refund Amount = (Turnover of zero-rated supply of goods + Turnover of zero-rated supply of services) × Net ITC ÷ Adjusted Total Turnover

• Net ITC is ITC availed on inputs and input services during the relevant period. From 1 April 2027 it also includes ITC on capital goods attributable to the relevant period (see Part 5).
• Turnover of zero-rated supply of goods is the value of such supplies made in the relevant period. Under the Explanation to rule 89(4), the value of goods exported is the FOB value in the shipping bill or bill of export, or the value in the tax invoice or bill of supply, whichever is less.
• The 1.5 times cap is gone. Until now, clause (C) also capped export turnover at 1.5 times the value of like goods supplied domestically by the same or a similarly placed supplier. From 1 November 2026 that cap is omitted. The Council's FAQ 29 notes the difficulty exporters faced in giving the value of like goods supplied domestically by a similarly placed supplier.
• Turnover of zero-rated supply of services is the payments received during the relevant period for zero-rated services, plus services completed in the period for which advance was received earlier, less advances received for services not yet completed.
• Adjusted Total Turnover is the turnover in the State or UT (excluding services), plus zero-rated and non-zero-rated services, excluding exempt supplies other than zero-rated supplies.

Worked example 2 (illustration prepared by us; quarter April–June 2027, ITC on capital goods ignored here)

The refund on zero-rated supplies is also linked to the realisation of export proceeds. CBIC Circular No. 263/09/2026-GST dated 26 October 2026 clarifies that the time for realisation of export proceeds for goods, for rule 96B, is the period (with any extension) under the RBI's FED Master Direction No. 16/2015-16. No recovery is made where the AD bank has written off the requirement to realise. It also clarifies when payment in rupees or by set-off meets the condition for export of services. See our update: Export of services: payment through rupee accounts and set-off accepted for GST.

Part 4: the inverted duty structure (rule 89(5))

The new formula

Maximum Refund Amount = {(Turnover of inverted rated supply of goods and services) × Net ITC ÷ Adjusted Total Turnover} – tax payable on such inverted rated supply of goods and services

where:

• Net ITC is the sum of ITC availed on inputs and eligible input services during the relevant period, plus ITC on capital goods attributable to the relevant period (from 1 April 2027);
• Eligible input services means input services on which ITC has been availed on or after 1 November 2026;
• Adjusted Total Turnover, relevant period and capital goods attributable to the relevant period have the same meaning as in rule 89(4).

What has really changed

Until now, rule 89(5) read:

Maximum Refund Amount = {(Turnover of inverted rated supply) × Net ITC ÷ Adjusted Total Turnover} – {tax payable on such inverted rated supply × (Net ITC ÷ ITC availed on inputs and input services)}

with Net ITC meaning ITC on inputs only. ITC on input services was not refunded, and the deduction for tax payable was scaled down by the ratio of input ITC to total ITC.

The new formula does two things. It brings input services into Net ITC, and it drops the ratio, so the full tax payable on the inverted rated supply is deducted. Where all the ITC has been availed after 1 November 2026, the formula usually returns the whole accumulated credit attributable to the inverted supply, as the example below shows.

Worked example 3: old formula against new (illustration prepared by us; quarter January–March 2027)

A manufacturer buys inputs taxed at 18% and sells goods taxed at 5%. All its supplies are inverted rated.

Under the new formula the refund equals the full credit left in the ledger after paying output tax (₹13,50,000 – ₹5,00,000).

Worked example 4: a business with other supplies too (illustration prepared by us)

Inverted rated turnover ₹60,00,000, tax payable on it ₹3,00,000, Adjusted Total Turnover ₹1,00,00,000, Net ITC ₹10,00,000.

Maximum refund = (60,00,000 × 10,00,000 ÷ 1,00,00,000) – 3,00,000 = 6,00,000 – 3,00,000 = ₹3,00,000.

Input services: the cut-off date

Only input services on which ITC is availed on or after 1 November 2026 count. ITC availed earlier stays outside Net ITC, even if it is still in the ledger.

Worked example 5 (illustration prepared by us; quarter October–December 2026)

Same facts as example 3, except that ₹50,000 of the ₹1,50,000 ITC on input services was availed in October 2026.

Net ITC = ₹12,00,000 + ₹1,00,000 = ₹13,00,000. Maximum refund = ₹13,00,000 – ₹5,00,000 = ₹8,00,000. The ₹50,000 availed in October remains in the credit ledger for use against future output tax.

The inversion test is unchanged

Input services do not create an inversion. Whether an inverted duty structure exists is still decided by comparing the tax rate on inputs with the rate on output supplies. Only where inversion exists does ITC on eligible input services (and on capital goods) enter Net ITC. The change does not widen the class of persons entitled to refund under clause (ii) of the first proviso to section 54(3) (FAQ 3). The Council gives two cases:

• Case A: inputs at 18%, output at 5%, input services such as professional services at 18%. Inversion exists, so ITC on input services availed on or after 1 November 2026 is included in Net ITC.
• Case B: inputs at 5%, output at 5%, input services at 18%. There is no inversion between inputs and outputs, so no refund is available merely because input services carry a higher rate.

Refund on account of the inverted duty structure is still not available for goods notified under Notification No. 5/2017–Central Tax (Rate) dated 28 June 2017 (FAQ 5). Under section 54(15), no refund of unutilised ITC is allowed on zero-rated supply of goods subject to export duty.

Part 5: ITC on capital goods (from 1 April 2027)

Where it applies

ITC on capital goods enters Net ITC in two refund categories (FAQ 4):

• refund of unutilised ITC on zero-rated supplies made without payment of tax under bond or LUT (rule 89(4)); and
• refund on account of the inverted duty structure (rule 89(5)).

It does not affect zero-rated supplies made on payment of integrated tax. In that route, ITC on capital goods can already be used to pay the tax.

The formula

Under new clause (G) of rule 89(4), capital goods attributable to the relevant period are capital goods on which ITC has been availed:

• in any month not earlier than 59 months before the last month of the relevant period; and
• on or after 1 April 2027.

ITC on such capital goods = {Aggregate of (1/60 × eligible ITC availed on capital goods × number of months)} – {Aggregate of ITC reversals applicable under the Act or Rules in respect of such capital goods attributable to the months in the relevant period}

Number of months is the number of months of the relevant period that fall within the 60 months beginning with the month in which the ITC on those capital goods was availed (Explanation to clause (G)).

In plain terms, ITC on each capital good is spread over 60 months, one-sixtieth a month, starting with the month it is availed. A refund claim picks up one-sixtieth for each month of the claim period that falls within that 60-month window (FAQ 5).

Only eligible ITC counts. ITC blocked under section 17(5), or otherwise not admissible, is excluded. Reversals required under the Act or Rules, including under rule 43, attributable to the months in the relevant period, are deducted (FAQ 7).

Worked example 6 (illustration prepared by us)

An exporter files a quarterly claim under LUT for July–September 2027.

"Months counted" are the months of July–September 2027 that fall within each machine's 60-month window.

If a rule 43 reversal of, say, ₹2,000 were attributable to those months for these machines, the figure would be ₹40,000.

Taking ITC on inputs and input services of ₹5,00,000, zero-rated turnover of ₹80,00,000 and Adjusted Total Turnover of ₹1,00,00,000:

Net ITC = ₹5,00,000 + ₹42,000 = ₹5,42,000. Refund = 80,00,000 × 5,42,000 ÷ 1,00,00,000 = ₹4,33,600.

When the window closes. Machine 1's 60 months run from April 2027 to March 2032. A claim for January–March 2032 still counts three months for it. For a claim for April–June 2032, April 2027 is more than 59 months before June 2032, so machine 1 drops out.

Our reading on gaps. The formula counts only the months inside the relevant period of a claim. If no refund claim is filed for some months, the one-sixtieth share for those months does not appear to be picked up in a later claim. Businesses that rely on this refund may want to claim for every period.

The new declaration on capital goods

From 1 April 2027, rule 89(2)(p) requires a declaration, where the claim includes capital goods, that:

• the capital goods have not been sold, disposed of or permanently removed from the business;
• the ITC on them is eligible; and
• they are being used for making the zero-rated or inverted rated supplies.

The new RFD-01 asks "Whether refund of ITC availed on capital goods being claimed? Y/N" against each relevant category.

Part 6: the new FORM GST RFD-01 (from 1 December 2026)

The substituted RFD-01 is designed for system-based matching. Information that was earlier uploaded as scanned documents is now captured in the form itself (FAQ 22).

Grounds of refund (drop-down): - excess cash ledger balance - export of services with payment of tax - exports without payment of tax - on account of order - inverted duty structure - inverted duty involving supplies under Notifications 40/2017-CT(R) or 41/2017-IT(R) - SEZ supplies with and without payment of tax - deemed exports (recipient or supplier) - change of place of supply - excess payment of tax - refund to unregistered persons - export of electricity without payment of tax - additional IGST on upward price revision after export - any other

Statements, by refund type:

• Annexure 3 is the statement of inward supplies under new rule 89(2)(n). It gives invoice-wise ITC, reversals under rules 38, 42 and 43 and section 17(5), and whether each invoice appears in GSTR-2B.
• Statement 3A and Statement 5A each say that column 2 (Net ITC) is not to exceed Net ITC as reported in Table 4C of GSTR-3B.
• Credit that has accumulated both because of inverted rates and because of supplies under a concessional notification needs separate applications, one per category (instruction 2).
• BRC or FIRC details are mandatory for export of services, and shipping bill and EGM details for export of goods (instruction 11).
• Where invoice details are amended, refund is calculated on the amended value (instruction 12).

Declarations and undertakings: - Declaration A (eligibility of ITC) - Declaration B (no tax collected from the SEZ) - Declaration C (deemed exports) - Declaration D (incidence not passed on, or a CA certificate under rule 89(2)(m) above ₹2 lakh for the specified categories) - Declaration E (non-prosecution) - Undertaking A (repay with interest if export proceeds are not realised) - Undertaking B (repay with interest if section 16(2) conditions are not met)

New rule 89(2)(o) requires a declaration, for refunds of unutilised ITC and on zero-rated supplies with payment of tax, that the applicant has not been prosecuted for any offence where the tax evaded exceeds ₹250 lakh in the five years before the tax period of the claim.

Two points in the form to watch

As notified, the form's wording does not yet match the rules in two places:

1. Declaration A for inverted duty claims still asks the applicant to declare that the claim does not include ITC on input services. For both categories, it also says the claim does not include ITC on capital goods. Under the amended rule 89(5), eligible input services are part of Net ITC from 1 November 2026, and capital goods from 1 April 2027. The form's own instruction 8A also says Net ITC for inverted duty includes input services availed on or after 1 November 2026.
2. Declaration E refers to prosecution where tax evaded exceeds ₹500 lakh. Rule 91(1) and new rule 89(2)(o) both use ₹250 lakh.

A clarification or corrigendum would settle these. Until then, applicants should make declarations that are accurate under the amended rules, and keep a note of the basis.

Part 7: the ₹1,000 threshold

Under section 54(14), no refund below ₹1,000 is paid. The Council has clarified that the threshold applies to the total refund across all tax heads taken together, not to each head separately (FAQ 28). It does not apply to refund of tax paid on goods exported out of India with payment of tax.

Example: a refund of central tax ₹400, State tax ₹400 and integrated tax ₹300 totals ₹1,100, so it is payable even though each head is below ₹1,000.

Frequently asked questions

Does a deemed acknowledgement mean the refund will be paid? No. It only starts the processing timeline. The claim is still processed under the risk framework and can still be scrutinised (FAQ 13).

Can the officer refuse the system's 90% provisional refund on a low-risk claim? No. For low-risk zero-rated and inverted duty claims, the 90% provisional sanction is system-driven, with no officer interface at that stage. Final scrutiny remains with the officer (FAQs 6 and 7).

What should I do to avoid validation failures? The Council's tips (FAQ 26): - fill the data correctly, with no clerical errors; - make it match your returns and other documents, such as shipping bills, and keep data consistent across all your compliances; - check the application before filing; - leave ineligible ITC, such as credit blocked under section 17(5), out of the calculation; - complete any reversal required under rules 42 and 43 as prescribed.

I filed a refund for an earlier period after 1 November 2026. Which inverted duty formula applies? The notification brings the new rule 89(5) into force from 1 November 2026 and limits eligible input services by the date the ITC was availed. It does not say how claims for relevant periods before that date are to be computed. Expect this to be raised; take advice on large claims.

Do I need to give the value of like goods supplied domestically for export refunds? No. That requirement in rule 89(4)(C) has been removed from 1 November 2026 (FAQ 29).

Is there a time limit for filing? Yes. Two years from the relevant date under section 54(1). The time taken up by an application that ends in a deficiency memo is excluded under the proviso to rule 90(3).

Checklist

• All returns due up to the date of filing are filed
• Inverted duty: inversion established between input and output rates (input services alone do not create it)
• Net ITC built only from eligible ITC; section 17(5) credit excluded; rule 42 and 43 reversals made
• Input services: only ITC availed on or after 1 November 2026
• Capital goods (from April 2027): only ITC availed on or after 1 April 2027; one-sixtieth per month of the claim period within the 60-month window; reversals deducted; rule 89(2)(p) declaration
• Export goods: lower of FOB and invoice value; shipping bill and EGM details; realisation within the RBI period
• Export services: BRC or FIRC details; payment received in an account accepted under Circular 263/09/2026-GST
• Net ITC in the calculation does not exceed GSTR-3B Table 4C
• Credit ledger debited in the rule 89(3) order
• Declarations accurate under the amended rules (see the two form points above)
• Aadhaar authentication done under rule 10B, for the automated provisional refund
• Track day 10 for RFD-02 or RFD-03, and day 60 for the final order

Sources

• CBIC Notification No. 05/2026–Central Tax dated 26 October 2026 (CGST (Amendment) Rules, 2026)
• GST Council: FAQs on recommendations made in the 57th GST Council meeting (refund FAQs, pages 13–24)
• Section 54 of the CGST Act, 2017 (CBIC Tax Information Portal)
• CGST Rules, 2017, earlier text of rules 89 to 91 (CBIC Tax Information Portal)
• CBIC Circular No. 263/09/2026-GST dated 26 October 2026

This article is for general information only and is not professional advice. The worked examples are illustrations prepared by us using the formulas in the rules; they are not taken from any department document.

This is general information based on the law as on the date shown, not professional advice. Rules change often; check the current position before acting.