Delayed GST refunds and the resulting blockage of working capital have been a long-standing concern for businesses. The GST Council, expected to meet on September 12, is likely to consider an amendment to the GST Act to enable a more automated and risk-based mechanism for processing input tax credit refunds, to reduce delays in their release.
The GST Council, at its next meeting on September 12, is likely to discuss making 90 percent of input tax credit (ITC) refunds automated and risk-based, with the system using taxpayers’ risk profiles to identify low-risk claims for faster release instead of relying on an officer-led assessment, a senior government source said.
“The further refinement we are considering is to make this process system-driven and automated. At present, there is some intervention by the officer, who assesses whether the taxpayer is low-risk before the provisional refund is released. Going forward, the system itself will determine the taxpayer’s risk based on the risk score,” the official told Moneycontrol.
The issue has been particularly acute for businesses facing an inverted duty structure, where tax paid on inputs is higher than the tax collected on output, leading to an accumulation of unutilised input tax credit. While taxpayers are entitled to claim a refund, the prescribed timeline for processing refunds is up to 60 days, with the system showing an average processing time of around 50 days, according to the senior government source. The delay can keep significant working capital locked up with businesses, although aggregate data on the amount of ITC pending for refund is not immediately available.
“The problem in cases of an inverted duty structure is that the input tax is higher while the output tax is lower. The difference is not immediately returned to the taxpayer as cash and, therefore, working capital gets stuck,” the source said.
An inverted duty structure arises when the GST rate on inputs is higher than that on the finished product, leading to an accumulation of input tax credit that businesses may seek to claim as a refund.
The law prescribes a 60-day window to process 100 percent refunds, but even that means funds sitting locked up for weeks at a stretch. “Our system shows that the average time taken is around 50 days… but it means that the taxpayer’s money remains stuck. The objective is to reduce this delay,” the official said.
From faster refunds to automated clearances
The first big push on this front came a year ago, at the Council’s earlier meeting in September, 2025, chaired by Finance Minister Nirmala Sitharaman, which approved a mechanism to sanction 90 percent of eligible refunds provisionally within seven days — initially for zero-rated exports, and later extended to inverted duty structure claims as well, effective November 1, 2025. That fix still relied on an officer’s sign-off before release. The proposal now before the Council for the 57th meeting would take that reform a step further, replacing the officer’s assessment with a fully automated, system-determined process.
“The proposal that was approved earlier provides for 90 percent of the refund to be given within seven days, with the remaining 10 percent to be processed subsequently within the prescribed time. The idea is to give taxpayers early access to most of their money while the balance amount is checked,” the source said. The remaining 10 percent of the refund claim is subjected to the regular verification and processing before final sanction.
The move builds on the mechanism approved by the 56th GST Council last year to allow provisional release of 90 percent of eligible refunds for inverted duty structure claims. While the facility is already available, the process currently involves officer intervention to assess claims. The government is now looking to make the mechanism automated and risk-based, allowing the system to identify low-risk taxpayers and speed up the release of refunds.
Taking discretion out of the loop
Under the existing mechanism, refund claims were subject to an initial assessment by tax officers before 90 percent of the eligible amount could be released provisionally. Officers would assess the risk associated with a claim and determine whether it qualified for faster processing, leaving room for manual intervention and delays.
“CBIC has already issued instructions in its jurisdiction for 90 percent of eligible refunds to be released within seven days… The difference now is that we want to move away from the officer-led assessment towards a system-based process,” the official said, adding that risky or mismatched claims would still be automatically flagged and held back. “If there is a mismatch or a risk in the claim — for example, if someone claims a higher amount than what is available or admissible — such cases will not qualify for immediate release within seven days. The system will identify such risky cases.”
Under the proposed system, however, automation would not mean automatic clearance of every claim. The system would first assess the risk associated with a refund claim and flag mismatches, such as claims exceeding the amount of credit available or admissible. Such claims would be held back from the seven-day provisional refund mechanism for further scrutiny, while low-risk claims could be cleared faster.
Amendment in GST Act
Because the shift would apply system-wide rather than through administrative instruction, it needs an amendment to the GST Act, which in turn requires Council approval — putting it on the agenda for the upcoming meeting. “For making the process fully system-driven, an amendment to the GST law will be required, which will have to be approved through the prescribed process, including by the GST Council. “This is essentially a fast-tracking measure, there is no issue of revenue loss,” the source said.
Aiming for income-tax-like confidence
The move is an attempt to bring GST refunds on par with the trust taxpayers already place in income-tax refunds. “The broader thinking is similar to the confidence taxpayers now have about income-tax refunds — that if excess tax is paid, the refund will come back quickly. We want to move towards a system where taxpayers are not worried that their money will remain stuck for long periods,” the source said.
