56th GST Council Meeting: Refunds, Rates and Rules

Long awaited 56th GST Council meeting happened on 3^rd September 2025 made recommendations relating to changes in the tax rates, relief to individuals and measure to facilitate trade along with FAQs. In this article, author tries to put the council’s recommendations in simpler words.

i. Measures to facilitate trade:

Provisional refund to ZRS (operational from 1^st November 2025):

Automatic risk-based Provisional refund will be provided to all Zero-rated supplies (i.e., Export of goods or services or both or supply to a Special Economic Zone developer/unit for authorised operations) based on identification and evaluation of risk by the system.

Further CBIC will notify certain categories of registered person to whom provisional refund will not be granted. Further it is required to note that, if the proper officer is of the opinion that provisional refund shall not be granted in a case, then he can carry out a detailed examination.

Provisional refund to IDS (operational from 1^st November 2025):

In a manner similar to the above proposal regarding refunds for zero-rated supplies, Council has proposed to provide automatic provisional refunds based on risk evaluation results for the inverted duty structure supplies too.

It is required to note that refund under IDS will not be given when the supplies become inverted duty due to the rate changes currently proposed. This leads to blockage of ITC and it impacts working capital.

Removal of threshold limit for Refund Application:

Council has recommended to remove the threshold limit of Rs. 1,000 to process the refund application. Further this removal is applicable only to exports made with payment of tax.

Simplified GST Registration scheme (operational from 1^st November 2025):

This is an optional scheme to the following persons wherein registration will be granted within 3 working days:

a. Identified by the system as a low risk applicants, and

b. Persons who determines that they would not pass ITC exceeding Rs. 2.5 Lakhs per month

Further, aforementioned persons can voluntarily opt out from this scheme.

In addition to the above persons, Council also wants to introduce this scheme to small suppliers who are supplying through ECO. Details regarding this introduction will be placed before the council in the upcoming meeting.

Removal of section 13(8)(b) of IGST Act:

Council decides to omit section 13(8)(b) which talks about the place of supply(POS) for intermediary services, wherein the POS shall be the location of the supplier. After this omission, residuary section i.e., 13(2) will applies and thereby the place of supply for intermediary services shall be the location of recipient. Effect of the omission can be understood by the following examples

Example 1: Let say A who is located outside India want some goods from India and B is acting as a intermediary for A to get the goods from Indian supplier. Author enumerated below whether export conditions are satisfying or not for the intermediary services

* – CFE and merely establishment conditions are Ignored

Now we will take the same transaction on the other way around

Example 2: Let say A who is located in India want goods from outside India and B is acting as an intermediary for A. Satisfaction of Import of services conditions for intermediary services are enumerated below

* – Recipient of supplier who is located in India has to pay taxes under RCM.

Post sale discount:

The Council recommended removing the requirement of “established in terms of an agreement” from section 15(3)(b) concerning discounts provided after a supply has been made. Due to this omission, discount given after supply made will be deducted from the value of supply even though it was not agreed in the agreement.

Further CBIC issued Circular 251/08/2025 on 12th September to clarify the following:

Q1. Whether the ITC available to the recipient when the supplier issues financial/ commercial credit notes against discount?

-Yes, Recipient is eligible for full ITC, and he is not required to reverse the ITC attributable to discount.

Q2. Whether a post-sale discount offered by a manufacturer to its dealer/ distributor, would be treated as a consideration paid by the manufacturer for the dealer’s supply of the same goods to the end customer as a monetary value of the inducement to supply of goods manufactured by him to the end customer?

-If there is no agreement between the manufacturer and the end customer, there are two independent sale transactions, one from the manufacturer to the dealer and the other from the dealer to the end customer and the discount cannot be included in consideration as the monetary value of the inducement of further supply of these goods

-However, in cases where the manufacturer has some agreement with an end customer such a post sale discount, given by the manufacturer to the dealer should be included in the overall consideration.

Q3. Whether a post-sale discount extended by the manufacturer to the dealer can be treated as a consideration in lieu of the activities performed to promote the sale of the goods?

-When such post-sale discounts given and dealer engage in promotional activities to boost sales, then post-sale discounts offered by manufacturers to dealers in such cases shall not be treated as consideration for a separate transaction of supply of services.

– However, GST would be leviable in cases where a dealer undertakes specific sales promotional activities, such as advertising campaigns etc.

ii. Changes in the tax rate:

1.Exemption to IGST and compensation cess on new armoured sedan Car imported by the President’s Secretariat for the President of India.

2. Explanation will be inserted in the notification under the definition of “specified premises” to clarify that the standalone restaurants cannot be added as specified premises.

3. GST will be levied on Retail sale price (RSP which is similar to MRP i.e., inclusive of taxes) for Pan Masala, Gutkha, Cigarettes, Unmanufactured tobacco, Chewing tobacco like Zarda.

4. Council has changed its tax structure i.e., from 4 rates (5%, 12%, 18% and 28%) to 2 rates (5% and 18%). Furthermore, Council introduced a special tax rate i.e., 40%. Council recommended the tax rate changes in the sectors such as Food, agriculture, fetilizers, textile, health, paper, transportation, leather, wood, footwear, construction, handicrafts, and job work etc. Effective dates is given below:

Important FAQ’s:

Q. My outward supply is exempt under new rate schedule. But I already have ITC of GST paid in my ledger. Will I need to reverse ITC?

– The ITC can be utilized to discharge outward liability for supplies of goods/services or both made till 21st September, 2025. However, for supplies made on or after i.e., 22nd September, 2025 when the rate change is effected, ITC will have to be reversed as per provisions of CGST Act, 2017.

Q. The GST rate has been reduced on my outward supply of goods/services made on or after 22nd September, 2025 but I already have ITC of GST in ledger that accrued on account of higher rate. Can I continue to use such credit?

– The input tax credit once duly availed in e-credit ledger can be used for discharge of any output tax liability in terms of provisions of section 49(4) of CGST Act and rules made thereunder.

Q. Will I be allowed to take refund of accumulated credit arising out of inverted duty structure for supplies effected upto the date of effect of revised rate as notified?

– The said issue has been clarified vide circular No. 135/05/2020-GST dated 31.03.2020 (as amended), which states that refund of accumulated ITC in terms of clause (ii) of first proviso to section 54(3) of the CGST Act, is available where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies. However, the input and output being the same in such cases, though attracting different tax rates at different points in time, do not get covered under the provisions of clause (ii) of the first proviso to sub-section (3) of section 54 of the CGST Act.

Q. Why is 40% rate referred to as special rate? What is the basis for subjecting goods to special rate?

–  The special rate is applicable only on few select goods, predominantly on sin goods and few luxury goods and therefore is a special rate. Most of these goods attracted Compensation Cess in addition to GST. Since it has been decided to end the Compensation Cess levy, the Compensation Cess rate is being merged with GST so as to maintain tax incidence on most goods. On other goods and services, the special rate has been applied as these were already attracting the highest GST rate of 28%.

iii. Relief to the Individual:

Operationalisation of GSTAT:

– Tribunal will start accepting the appeals before the end of the September and hearing will be commenced from the end of December.

– Old appeals will be taken till June 2026.

– Principle bench of GST Tribunal acts as a National appellate authority for advance ruling (NAAAR).

Rate changes:

– Footwear and clothing value upto Rs. 2500 are taxable at 5% and more than Rs. 2500 will be taxable at 18%.

– 33 Medicines are exempted from GST.

– Stationery items are exempted from GST.

– Tax is reduced on Daily consumable items.

– Tax on motor vehicles upto 350cc is reduced.

– Individual Health and life insurance are exempted from GST.

– Tax rate on Hotel accommodation is reduced.

Report:

Department of revenue requested all the Principal chief commissioners and chief commissioners to compile commodity wise price data prior to rate changes and after rate changes in the following format for the next 6 months.

1^st report on 30^th September 2025

Subsequent monthly reports on 20^th of each month till march 2026.

Views expressed in this article are personal and must not be construed as a legal opinion.

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