Background:
Under Rule 90 of the CGST Rules, 2017, the proper officer was required to issue an acknowledgement in FORM GST RFD-02 or a deficiency memo in FORM GST RFD-03 within 15 days of filing of a refund application; the 60-day period under Section 54(7) for sanction of refund runs from the date of acknowledgement. Rule 91 provided for provisional refund of 90% of the claim on zero-rated supplies by an order in FORM GST RFD-04 issued by the proper officer within seven days of acknowledgement, and vide Notification No. 14/2025-Central Tax, provisional refund on the basis of risk evaluation by the system was extended to inverted duty structure claims with effect from 01.10.2025. Even so, acknowledgements were often delayed beyond the prescribed period, deficiency memos were issued on peripheral grounds restarting the limitation clock, and refund of excess balance in the electronic cash ledger – which involves no verification of eligibility – was processed manually. Exporters and taxpayers under inverted duty structure consistently represented that working capital remained blocked in refunds.
The 57th GST Council (08.10.2026) recommended system-based processing and sanctioning of refund claims in two phases. Phase 1 covers (i) automatic sanction of full refund of excess balance in the electronic cash ledger without officer intervention; (ii) reduction of the time limit for acknowledgement/deficiency memo from 15 to 10 days, with deemed acknowledgement by the system thereafter; and (iii) automatic provisional sanction of 90% of refund claims on zero-rated supplies and inverted duty structure on the basis of risk evaluation by the system. Phase 2 will bring system-based acknowledgement and automated sanction of full refund in zero-rated supply cases. The Council also recommended amendment of FORM GST RFD-01 to capture details in system-readable format and dispense with upload of scanned documents.
What the Notification provides:
Now, the CBIC vide Notification No. 05/2026-Central Tax dated 26.10.2026 has carried out the following amendments to implement Phase 1:
- Rule 90(2) – Acknowledgement: The time limit for the proper officer to scrutinise the application for completeness and issue the acknowledgement in FORM GST RFD-02 has been reduced from 15 days to 10 days.
- Rule 90(3) – Deficiency memo: A deficiency memo in FORM GST RFD-03 must likewise be issued within 10 days of filing of the application.
- New Rule 90(3A) – Deemed acknowledgement: Where neither an acknowledgement in RFD-02 nor a deficiency memo in RFD-03 is issued within 10 days, the application is deemed acknowledged and the acknowledgement is made available by the common portal in FORM GST RFD-02 indicating the date of filing; the 60-day period under Section 54(7) is counted from that date of filing.
- Rule 91(2) – Automatic provisional refund: The common portal, on the basis of identification and evaluation of risk by the system, shall generate the provisional refund order in FORM GST RFD-04 within three working days from the date of acknowledgement (including deemed acknowledgement), and such order does not require revalidation by the proper officer. Rule 91(3) is amended so that the payment order in FORM GST RFD-05 may be made available through the common portal.
- New Rule 92(1B) – Excess cash ledger balance: Where refund of balance in the electronic cash ledger under Section 49(6) is due, the order in FORM GST RFD-06 shall be generated by the common portal, sanctioning the refund after adjusting any outstanding demand under the Act or any other law, and Rule 92(4) is amended to provide for the payment order in RFD-05 where the amount is determined by the common portal.
- Rule 89(1) and (1A): The words permitting filing of refund applications “either directly or through a Facilitation Centre notified by the Commissioner” have been omitted, as applications are filed electronically on the common portal.
- Rule 86(3) read with new Rule 89(3) – Order of debit of credit ledger: Where the refund relates to ITC, the electronic credit ledger is to be debited by the applicant in a prescribed order – first IGST to the extent of balance; then CGST and SGST/UTGST equally to the extent of balance; and where there is a shortfall in one of the CGST/SGST ledgers, the differential amount is debited from the other (with illustrations incorporated in the rule).
- Rule 89(2) – Statements and declarations (w.e.f. 01.12.2026): The statements to be furnished with the application are now to contain “details” of invoices (rather than merely “number and date”), to be captured in system-readable format in substituted FORM GST RFD-01; new clause (ha) prescribes a statement of invoices along with shipping bills/bills of export filed by the merchant exporter for refund claims by suppliers under Notification No. 40/2017-CT(R)/41/2017-IT(R); new clause (n) prescribes a statement of invoices received along with ITC details for refund of unutilised ITC; and new clause (o) requires a declaration that the applicant has not been prosecuted for any offence where the tax evaded exceeds ₹2.5 crore during the five years preceding the tax period, in cases of refund of unutilised ITC under Section 54(3) or zero-rated supplies with payment of tax. The requirement to describe the claim as arising from inputs taxed higher than outputs in the statement under clause (h) has been omitted, and clause (p) (declaration regarding capital goods) will apply from 01.04.2027.
FORM GST RFD-01 has been substituted with effect from 01.12.2026 to capture the above details in structured form, and FORM GST RFD-07 has been updated for its rule reference.
Effective date:
The amendments to Rules 86(3), 89(1)/(1A)/(3), 90, 91 and 92 are effective from 1st November, 2026. The amendments to Rule 89(2) and the substituted FORM GST RFD-01 take effect from 1st December, 2026. From 01.11.2026, refund applicants can expect an acknowledgement (or deemed acknowledgement) within 10 days, system-generated provisional refund of 90% within three working days thereafter in low-risk zero-rated and inverted duty structure claims, and fully automated refund of excess cash ledger balance. Applicants should ensure that the data in the refund application matches returns, shipping bills and ledgers, as the system will rely on validations rather than manual scrutiny.
The Notification can be accessed at: https://a2ztaxcorp.net/wp-content/uploads/2026/10/CBIC-NN-05-2026–Central-Tax.pdf
