57th GST Council: Automatic Refunds, 90% Provisional Refund and ITC Relief

Summary: The 57th GST Council Meeting held on 8 October 2026 recommended major changes to the GST refund system to reduce manual processing, simplify compliance and improve working capital for businesses. Through an Arjuna–Krishna dialogue, the article explains the proposed two-phase system for automatic refunds under Section 54 of the CGST Act. The first phase proposes automatic refund of excess electronic cash ledger balances, reduction of the acknowledgement or deficiency memo period from 15 days to 10 days, deemed acknowledgement and system-based provisional sanction of 90% of eligible zero-rated and inverted duty refunds. FORM GST RFD-01 is proposed to capture system-readable information, reducing dependence on scanned supporting documents. Other recommendations include removing the 1.5-times domestic-value restriction under Rule 89(4)(C), applying the ₹1,000 minimum refund threshold to the combined amount under different tax heads, and expanding refund eligibility to input services and capital goods in specified cases. The proposed dates are 1 November 2026 for eligible input-service ITC and 1 April 2027 for capital-goods ITC, with the latter spread over 60 months. Taxpayers should strengthen return reconciliation, maintain accurate export records and track eligible credits separately while awaiting the implementing legal instruments.

57th GST Council Meeting: Major Changes Proposed in GST Refund Process

Arjuna (Fictional Character): Krishna, the 57^th meeting of the GST Council was held on 8th October 2026 in New Delhi. What are the proposed changes in GST council meeting this time?

Krishna (Fictional Character): Arjuna, while the 56th meeting focused on rate cuts, this meeting focused on process reforms. The Council has recommended many changes related to Process reforms in Returns, Registrations, ITC eligibility, Refunds etc. The most important refund which we will discuss today. These are recommendations and will apply only once notified.

Proposed Changes in GST Refund Processing

Arjuna (Fictional Character): Krishna, refunds have always been a critical and complicated process like submission of documents, certification, officer visits, etc and months of follow up. What exactly is changing?

Krishna (Fictional Character): Arjuna, Section 54 of the CGST Act, 2017 and the CGST Rules will be amended to provide system-based auto processing of refunds for excess cash ledger balance and on fulfilment of some criteria for zero-rated supplies (exports and SEZ supplies) and inverted duty structure. This will be rolled out in two phases, whose effective dates are yet to be announced.

Phase One: Automatic Refunds and Faster Acknowledgement

Arjuna (Fictional Character): Krishna, two phases? What will the first phase bring?

Krishna (Fictional Character): Arjuna, the first phase brings three changes. First, excess balance in the electronic cash ledger will be refunded in full automatically, without any officer. Second, the time for acknowledgement or deficiency memo will reduce from 15 days to 10 days, failing which the application for refund will be deemed acknowledged. Third, for zero-rated and inverted duty claims, 90% will be sanctioned provisionally by the system itself on the basis of risk evaluation.

System-Readable FORM GST RFD-01

Arjuna (Fictional Character): Krishna, will scan documents still be required?

Krishna (Fictional Character): Arjuna, no. FORM GST RFD-01 will capture details in a system-readable format, and scanned uploads will not be needed for zero-rated and inverted duty refunds. But since the system will read the data directly, invoices, shipping bills, export realisation and figures in GSTR-1 and GSTR-3B must match exactly. A mismatch will now be caught by the system, not explained to an officer.

Removal of 1.5 Times Export Turnover Restriction

Arjuna (Fictional Character): Krishna, exporters often lost part of their refund due to the 1.5 times rule. Any relief?

Krishna (Fictional Character): Arjuna, under Rule 89(4)(C) of the CGST Rules, 2017, export turnover of goods is capped at 1.5 times the value of like goods supplied domestically. Suppose Mr. B exports a product at Rs. 300 per unit while like goods sell domestically at Rs. 150 per unit. Today, only Rs. 225 per unit is counted. With this cap removed, his full Rs. 300 per unit will be considered.

₹1,000 Minimum Refund Threshold under Section 54(14)

Arjuna (Fictional Character): What about small refunds, Krishna?

Krishna (Fictional Character): Arjuna, under Section 54(14), no refund is paid if the amount is less than Rs. 1,000, and there was confusion whether this applies to each tax head separately. Now it will apply to CGST, SGST/UTGST and IGST taken together. So CGST of Rs. 600 and SGST of Rs. 600, totalling Rs. 1,200, will be refunded.

Refund of ITC on Input Services and Capital Goods

Arjuna (Fictional Character): Krishna, will refund of ITC on input services and capital goods now be allowed?

Krishna (Fictional Character): Arjuna, yes, this is a major change. Till now, inverted duty refund was restricted to ITC on inputs alone. Now refund will cover ITC on input services and capital goods for inverted duty, and ITC on capital goods for zero-rated supplies. Input services refund will apply to ITC availed on or after 1st November 2026, while capital goods refund will be spread over 60 months for ITC availed on or after 1st April 2027.

What Taxpayers Should Learn from Proposed Refund Reforms

Arjuna (Fictional Character): Krishna, these are the major changes in GST refund, what should taxpayers learn from this?

Krishna (Fictional Character): Arjuna, preparation must begin now. Taxpayers should reconcile GSTR-1, GSTR-3B and GSTR-2B every month and match shipping bills and export realisation with returns. Pending dues should be cleared, as these will be adjusted against refunds and affect the risk profile. ITC on input services from 1st November 2026 and on capital goods from 1st April 2027 should be tracked separately in books, and idle cash ledger balances should be reviewed. This is the proposed change, the taxpayer should wait for the final notification.