Summary: The 57th GST Council Meeting, held on 8 October 2026, recommended significant changes to the Goods and Services Tax framework concerning refunds, input tax credit, zero-rated supplies, exports and taxpayer safeguards. The proposals envisage a phased transition towards automated refund processing, including automatic refunds of excess electronic cash ledger balances, reduction of the acknowledgement timeline from 15 days to 10 days and system-based provisional refunds of 90% for eligible claims. The Council also proposed simplifying Form GST RFD-01 and removing the 1.5-times domestic-value restriction for computing turnover of zero-rated goods under Rule 89(4)(C). The recommendations further include expanding refunds of accumulated input tax credit attributable to specified input services and capital goods, rationalising blocked credits under Section 17(5) of the CGST Act, 2017, and clarifying the ₹1,000 minimum refund threshold under Section 54(14). Proposed commencement dates for certain accumulated-credit refund benefits are 1 November 2026 and 1 April 2027, subject to the relevant amendments and implementation provisions. On exports, the Council recommended changes to the definition of export of services under Section 2(6) of the IGST Act, 2017, omission of Section 13(3)(a) governing the place of supply for specified services involving goods physically made available, and clarification of zero-rating for goods supplied to overseas buyers but delivered in SEZ/FTWZ facilities. It also proposed a mechanism under Rule 86A for taxpayers to object to blocking of their electronic credit ledger balances and obtain an opportunity of hearing. These recommendations aim to improve refund efficiency, ease working-capital constraints and strengthen procedural safeguards. Their legal effect, however, depends upon subsequent legislative amendments, notifications, rules and applicable commencement dates.
- Introduction
- 1. Faster GST Refunds Through Automation: A Two-Phase Reform
- 1.1. Phase I: Automated Refund Processing and Provisional Sanction
- 1.2. Phase II: Automated Acknowledgement and Sanction
- 2. Simplification of Refund Applications and Rationalisation of Refund Conditions
- 2.1. Simplified Form GST RFD-01
- 2.2. Removal of the Turnover Restriction for Zero-Rated Supplies of Goods
- 2.3. Clarification of the ₹1,000 Minimum Refund Threshold
- 3. Interest on Refund of Pre-Deposit Paid for Filing Appeals
- 4. Refund of Accumulated ITC on Input Services and Capital Goods
- Proposed Applicability at a Glance
- Expected Impact on Businesses
- 5. Rationalisation of Blocked ITC under Section 17(5) of the CGST Act, 2017
- 6. Reforms Relating to Exports and Zero-Rated Supplies
- 6.1. Proposed Amendment to the Definition of “Export of Services”
- 6.2. Clarification on Receipt of Export Proceeds
- 6.3. Place of Supply for Services Involving Goods Made Physically Available
- 6.4. Zero-Rating of Goods Delivered to an SEZ/FTWZ for an Overseas Buyer
- 7. A Procedural Safeguard Against Blocking of ITC: Rule 86A
- Conclusion: Towards a More Efficient GST Refund and ITC Framework
Introduction
The 57th GST Council Meeting, held on 8 October 2026, recommended a series of reforms aimed at expediting GST refunds, improving the utilisation of input tax credit (ITC) and simplifying provisions relating to exports and zero-rated supplies. The key proposals include system-based processing of eligible refund claims, removal of certain restrictions on refunds of accumulated ITC relating to input services and capital goods, rationalisation of blocked ITC under Section 17(5) of the CGST Act, 2017, and measures to facilitate export-related benefits for Indian businesses. The Council also recommended procedural safeguards for taxpayers whose electronic credit ledger balances are blocked under Rule 86A of the CGST Rules, 2017.
Let us examine these recommendations, the relevant statutory provisions and their potential implications for taxpayers and businesses.
1. Faster GST Refunds Through Automation: A Two-Phase Reform
The 57th GST Council Meeting recommended a phased shift towards system-driven refund processing, with the objective of reducing manual intervention, accelerating sanctions and improving predictability for taxpayers.
1.1. Phase I: Automated Refund Processing and Provisional Sanction
a) Automatic cash ledger refunds
Refunds of excess balances in the electronic cash ledger are proposed to be sanctioned automatically, without tax officer intervention.
b) Shorter acknowledgement timeline
The time limit for issuing an acknowledgement or deficiency memo is proposed to be reduced from 15 days to 10 days.
If neither an acknowledgement nor a deficiency memo is issued within 10 days, the system would generate a deemed acknowledgement.
c) Provisional refund of 90%
Eligible claims relating to zero-rated supplies and inverted duty structure would qualify for automated provisional sanction of 90% of the claimed amount, based on system-driven risk assessment.
1.2. Phase II: Automated Acknowledgement and Sanction
d) System-generated acknowledgement
Refund applications would be acknowledged automatically after system verification of the relevant application requirements, eliminating the need for officer intervention at this stage.
e) Automated sanction of full refunds
For acknowledged claims relating to zero-rated supplies, the system would automatically sanction the full eligible refund, after adjusting any pending dues and subject to system-based risk identification and evaluation.
2. Simplification of Refund Applications and Rationalisation of Refund Conditions
2.1. Simplified Form GST RFD-01
- Refund details to be captured in a system-readable format.
- Scanned-document upload requirement proposed to be removed for claims relating to zero-rated supplies and inverted duty structure (IDS).
2.2. Removal of the Turnover Restriction for Zero-Rated Supplies of Goods
As per Rule 89(4) of the CGST Act, 2017, in the case of zero-rated supply of goods or services or both without payment of tax, amount of refund is determined as per below formula –
Refund Amount = (Turnover of zero-rated supply of goods + Turnover of zero-rated supply of services) x Net ITC ÷ Adjusted Total Turnover
The council has proposed amendment in the definition of “Turnover of zero-rated supply of goods” as per below –
| Current Provision | Proposed Change |
|---|---|
| Rule 89(4)(C)-Turnover of zero-rated supply of goods means the value of zero-rated supply of goods made during the relevant period without payment of tax under bond or letter of undertaking or the value which is 1.5 times the value of like goods domestically supplied by the same or, similarly placed, supplier, as declared by the supplier, whichever is less. | The council has recommended removing the restriction of 1.5 times the value of like goods domestically supplied, on the maximum amount of refund. |
2.3. Clarification of the ₹1,000 Minimum Refund Threshold
The Council recommended clarifying Section 54(14) of the CGST Act, 2017, so that the ₹1,000 threshold applies to the aggregate refund amount across CGST, SGST/UTGST and IGST, rather than separately to each tax component.
3. Interest on Refund of Pre-Deposit Paid for Filing Appeals
- The council has proposed amendment in section 115 of the CGST Act, 2017, to make it a standalone provision governing the applicable interest rate on refunds of pre-deposits.
- It also recommended issuing a circular to clarify issues relating to the applicable interest rate.
4. Refund of Accumulated ITC on Input Services and Capital Goods
The Council recommended amending clause (ii) of the proviso to Section 54(3) of the CGST Act, 2017, along with the relevant CGST Rules, to permit refunds of accumulated ITC attributable to:
- Capital goods in cases of zero-rated supplies.
- Input services and capital goods in cases of inverted duty structure.
These proposals seek to address the accumulation of credit that businesses may otherwise be unable to utilise, particularly where output tax liability is insufficient to absorb eligible input tax credit.
Proposed Applicability at a Glance
01 Nov 2026 – Refund of accumulated ITC on input services under inverted duty structure proposed for credit availed on or after 1 November 2026.
01 Apr 2027 – Refund of eligible input tax credit on capital goods under zero rated supply & inverted duty structure proposed for credit availed on or after 1 April 2027, spread over 60 months.
Expected Impact on Businesses
- Reduced ITC Accumulation: Improved access to refunds of eligible accumulated ITC.
- Enhanced Liquidity: Release of funds otherwise locked in unutilised credit, easing working capital constraints.
5. Rationalisation of Blocked ITC under Section 17(5) of the CGST Act, 2017
The GST Council recommended amendments to Section 17(5) of the CGST Act, 2017, to remove restrictions on the availment of ITC in respect of specified supplies, including:
- Outdoor catering.
- Health and life insurance.
- Telecommunication towers.
- Pipelines laid outside factory premises.
- Free samples.
- Goods destroyed or written off on expiry of their shelf life, as required by law.
The proposed changes seek to reduce restrictions on credit availment in the specified categories and mitigate the cascading effect of taxes across the supply chain.
6. Reforms Relating to Exports and Zero-Rated Supplies
6.1. Proposed Amendment to the Definition of “Export of Services”
The Council recommended amending the definition of “export of services” under Section 2(6) of the IGST Act, 2017, by omitting sub-clause (v). The proposed amendment would remove the condition that the supplier and recipient of services must not be merely establishments of a distinct person under Explanation 1 to Section 8 of the IGST Act.
Proposed Amendment
Section 2(6) “export of services” means the supply of any service when,-
(i) the supplier of service is located in India;
(ii) the recipient of service is located outside India;
(iii) the place of supply of service is outside India;
(iv) the payment for such service has been received by the supplier of service in convertible foreign exchange or in Indian rupees wherever permitted by the Reserve Bank of India; and
(v) the supplier of service and the recipient of service are not merely establishments of a distinct person in accordance with Explanation 1 in section 8;
6.2. Clarification on Receipt of Export Proceeds
The Council recommended issuing a circular to clarify issues relating to the receipt of payment in convertible foreign exchange or in Indian rupees, wherever permitted by the RBI, for exports of goods and services.
The clarification is intended to address interpretational issues concerning the permissible modes of receiving export proceeds and provide greater certainty regarding compliance with the payment-related conditions for export transactions.
6.3. Place of Supply for Services Involving Goods Made Physically Available
| Current Provision | Proposed Change |
|---|---|
| Section 13(3)(a) of the IGST Act, 2017 provides that where services are supplied in respect of goods that are required to be made physically available by the recipient to the supplier, the place of supply is generally the location where the services are actually performed. | The Council recommended omitting Section 13(3)(a). Consequently, the place of supply for such services would be determined under the default rule in Section 13(2), i.e., the location of the recipient of the services. |
The proposed amendment could facilitate access to export-related benefits for Indian service providers supplying such services to foreign recipients, subject to fulfilment of the applicable conditions under the IGST Act.
6.4. Zero-Rating of Goods Delivered to an SEZ/FTWZ for an Overseas Buyer
| Current Provision | Proposed Change |
|---|---|
| Section 16(1) of the IGST Act, 2017, provides for zero-rating of specified supplies, including exports of goods or services and supplies to SEZ developers or SEZ units for authorised operations. However, uncertainty may arise where goods are sold to an overseas buyer but delivered to the said buyer in an SEZ/FTWZ in India. | An Explanation is proposed to provide that where goods are supplied to an overseas buyer, but delivered to that buyer in an SEZ/FTWZ, and payment is received in convertible foreign exchange or in Indian rupees wherever permitted by the RBI, the supply will be deemed to be a supply of goods to an SEZ/FTWZ. |
The proposed amendment seeks to provide greater certainty regarding zero-rating for Indian manufacturers supplying goods to overseas buyers through SEZ/FTWZ facilities for warehousing or further processing.
7. A Procedural Safeguard Against Blocking of ITC: Rule 86A
The Council recommended amending Rule 86A of the CGST Rules, 2017, to provide a formal mechanism for taxpayers to challenge the blocking of amounts in their electronic credit ledger.
- Right to object –Taxpayers would be able to file an objection against the blocking of amounts in their electronic credit ledger.
- Opportunity of personal hearing –Taxpayers would be able to present their case before the proper officer decides the objection.
Conclusion: Towards a More Efficient GST Refund and ITC Framework
The recommendations of the 57th GST Council Meeting address several practical challenges faced by businesses: refund delays, accumulated ITC, restrictions on credit availment and uncertainty in export-related transactions.
The proposed reforms seek to deliver three broad outcomes:
- Faster processing
Automated refund workflows and simplified application requirements.
- Better working capital management
Expanded refund eligibility in specified cases and potential relief from accumulated credit.
- Greater procedural clarity
Clarifications on export treatment and proposed safeguards for taxpayers affected by blocked ITC.
The actual impact will depend on the final amendments, rules, notifications, implementation mechanisms and effective dates. Businesses should monitor these developments and assess their implications for refund claims, ITC utilisation, working capital and GST compliance.
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Disclaimer: This article discusses recommendations made at the 57th GST Council Meeting. Recommendations do not, by themselves, amend the law. Their legal effect is subject to the relevant legislative amendments and commencement provisions.
