The Goods and Services Tax framework in India has undergone a significant transformation with the introduction of a risk-based provisional refund system.
This system aims to expedite the refund process, particularly for exporters and businesses affected by the inverted duty structure (IDS). Chartered Accountants (CAs) play a pivotal role in guiding clients through these changes, ensuring compliance, and optimizing cash flow.
The Central Board of Indirect Taxes and Customs (CBIC) issued Instruction No. 06/2025-GST, introducing a risk-based provisional refund mechanism under Rule 91(2) of the CGST Rules, 2017.
This reform aligns with the recommendations of the 56th GST Council Meeting held on September 3, 2025, and aims to streamline the refund process by leveraging system-generated risk assessments.
The changes are expected to benefit exporters, businesses with inverted duty structures, and GST-registered taxpayers, especially in liquidity management.
Effective November 1, 2025, businesses, especially exporters, will be able to receive provisional refunds of up to 90% of the total claimed amount, without waiting for detailed scrutiny by tax officers. This system aims to reduce delays and improve working capital for eligible businesses.
New Updates in the Provisional Refund System
1. 90% Provisional Refund for Zero-Rated Supplies
- Eligibility: Refund claims related to zero-rated supplies, including exports and supplies to Special Economic Zones (SEZs), are now eligible for provisional refunds.
- Implementation: Provisional refunds of up to 90% of the claimed amount can be sanctioned based on a system-generated risk assessment. This means businesses can expect faster refunds without waiting for manual processing.
- Objective: Improve liquidity for exporters and businesses involved in zero-rated supplies. This measure will relieve working capital constraints, enhancing the overall efficiency of the refund system.
2. Extension to Inverted Duty Structure (IDS) Refunds
- Interim Measure: Until a formal amendment to Section 54(6) of the CGST Act is enacted, the 90% provisional refund applies to IDS claims filed on or after November 1, 2025.
- Scope: Extending the provisional refund system to businesses experiencing an inverted duty structure (where the tax paid on inputs exceeds the tax paid on output supplies) will support businesses struggling with blocked Input Tax Credit (ITC). This interim measure aims to reduce the financial strain on these businesses.
3. Risk-Based Classification of Refund Applications
- System Evaluation: Refund claims are assessed using automated risk parameters to classify them as either 'low-risk' or 'high-risk'. Sanctioning Process:
- Low-Risk: Provisional refunds of 90% will be sanctioned without detailed scrutiny.
- High-Risk: Claims will undergo more detailed manual examination before the final refund is sanctioned.
- Officer Discretion: In high-risk cases, officers must record the reasons for withholding the provisional refund in writing, ensuring transparency in the decision-making process.
Practical Insights for Chartered Accountants
As a Chartered Accountant, it is important to ensure that clients are well-prepared to navigate the new provisional refund process. The following actionable insights will help guide clients through this reform and ensure they benefit from the new system.
1. Ensure Compliance with Aadhaar Authentication
- Requirement: All authorized signatories must undergo Aadhaar authentication under Rule 10B for GST refunds.
- Impact: Non-compliance with Aadhaar authentication could render a business ineligible for provisional refunds. Ensure clients complete this authentication process promptly to avoid delays.
2. Maintain Accurate and Consistent Documentation
- Documentation: Businesses must maintain accurate records, including invoices, shipping bills, export documentation, and other GST-related records. Accurate and timely documentation will help avoid errors and ensure smooth processing of refund claims.
- Reconciliation: Regularly reconcile data between GSTR-1, GSTR-3B, and export-related documents to avoid discrepancies. Ensure that all entries align with GST filings to prevent any delays in refunds.
3. Advise Clients on Provisional Refund Eligibility
- Eligibility Criteria: Ensure clients understand the eligibility criteria, including maintaining a clean compliance history with no pending disputes or show-cause notices.
- Documentation Readiness: Keep clients' supporting documents ready for verification, if needed. This includes keeping track of all invoices and export records, especially for refund claims involving zero-rated supplies or IDS-related claims.
4. Monitor Refund Status and Address Deficiencies Promptly
- Portal Monitoring: Encourage clients to regularly check the GST portal for the status of their refund applications. Any deficiency memos or electronic data mismatches must be promptly addressed to avoid delays in refund processing.
- Client Communication: Keep your clients informed about the status of their refund claims and communicate any actions required on their part. Regular updates will help maintain trust and prevent confusion.
5. Stay Updated on Legislative Amendments
- Legislative Changes: As a Chartered Accountant, staying updated on amendments to the CGST Act, especially those related to Section 54(6), will enable you to provide timely advice to clients. The government may continue to issue amendments related to GST refund policies.
- CBIC Notifications: Regularly review CBIC notifications and instructions for updates on refund procedures and eligibility criteria. This ensures that clients benefit from the latest changes and avoid missing out on potential refunds.
Maximizing Benefits of the New Provisional Refund System
The introduction of the risk-based provisional refund system from November 1, 2025, marks a significant reform aimed at simplifying the GST refund process in India. By allowing businesses to receive 90% provisional refunds based on risk scores, the system aims to ease cash flow challenges for exporters and businesses affected by the inverted duty structure.
CAs have an essential role in guiding clients through this transition.
By ensuring compliance with Aadhaar authentication requirements, maintaining proper documentation, and staying informed about legislative amendments, CAs can help their clients successfully navigate the provisional refund process, thereby optimizing cash flow and minimizing the impact of delayed refunds.
Chartered Accountants are encouraged to conduct workshops and seminars to educate their clients about the new provisional refund system. This will ensure clients are well-prepared and compliant with the updated GST procedures, ultimately fostering better liquidity management and smoother business operations.
By leveraging this reform effectively, businesses can enhance their financial health and achieve more sustainable growth in the evolving GST landscape.
FAQs
1. What is the new provisional refund system under GST?
The new system allows businesses to receive 90% provisional refunds of their GST claims on zero-rated supplies and inverted duty structure (IDS) claims without waiting for detailed scrutiny, starting November 1, 2025.
2. Who is eligible for provisional refunds under the new system?
Businesses engaged in zero-rated exports and SEZ supplies, as well as those facing inverted duty structures, are eligible. Refunds are granted based on a risk-based classification of their claims.
3. How is the risk-based classification determined?
Refund claims are evaluated by an automated system, which classifies them as low- or high-risk. Low-risk claims receive 90% provisional refunds, while high-risk claims are subject to detailed manual scrutiny.
4. What is required for businesses to receive provisional refunds?
To receive provisional refunds, businesses must ensure Aadhaar authentication for authorized signatories and maintain accurate documentation like invoices, export bills, and GST filings.
5. When does the new provisional refund system come into effect?
The new provisional refund system will apply from November 1, 2025, to businesses filing claims for zero-rated supplies and IDS.
