GST Refunds and ITC after the 57th Council Meeting: Automated Refunds, Input Services from 1 November 2026, Capital Goods from 1 April 2027

The GST Council, at its 57th meeting on 8 October 2026, recommended two sets of changes that bear directly on working capital: system-based processing of refunds under section 54 of the Central Goods and Services Tax Act, 2017 (CGST Act), and a wider base of input tax credit that can be refunded or used. Two of the recommendations carry dates in the release itself, 1 November 2026 and 1 April 2027, and the first of those falls within weeks. What follows sets out each change, the dates as the release states them, and what a business claiming refunds should do now.

The release closes by stating that the recommendations will be given effect through circulars, notifications and law amendments, “which alone shall have the force of law”. Most of what follows needs an amendment to section 54 or to the CGST Rules, 2017, so the present provisions continue until then.

Refunds processed by the system

The Council recommended amendments to section 54 and the rules for system-based processing and sanction of refunds of three kinds: excess balance in the electronic cash ledger, zero-rated supplies, and inverted duty structure. It is to come in two phases.

Phase 1:

• a refund of the full excess balance in the electronic cash ledger is to be sanctioned by the system, without an officer;
• the time to issue an acknowledgement or deficiency memo is to fall from 15 days to 10 days, and if neither issues within 10 days, the application is deemed acknowledged;
• for zero-rated supplies and inverted duty structure, 90% of the amount claimed is to be sanctioned provisionally by the system, on its identification and evaluation of risk.

Phase 2:

• acknowledgement is to be automated, on the system’s verification of the application;
• in acknowledged cases on zero-rated supplies, the full refund is to be sanctioned by the system, after adjusting pending dues, if any, again on the basis of risk evaluation.

Provisional sanction “on the basis of identification and evaluation of risk” implies that a claim the system treats as risky may not receive the 90%. The release does not say what parameters the risk evaluation will use, so the practical preparation is a clean record: returns filed on time and reconciled with each other.

Changes to the refund application and formula

Three further changes are recommended:

• FORM GST RFD-01 is to capture its details in a system-readable format, and scanned documents are no longer to be uploaded with claims on zero-rated supplies and inverted duty structure;
• rule 89(4)(C) of the CGST Rules is to lose the restriction that limits the turnover of zero-rated supply of goods to 1.5 times the value of like goods supplied domestically;
• section 54(14) is to carry an explanation that the ₹ 1,000 threshold applies to the total refund, counting CGST, SGST/UTGST and IGST together.

The limit reduces the refund only where the export value of goods exceeds 1.5 times the value of like goods supplied domestically, so its removal matters to exporters in that position.

Interest on refund of pre-deposit

Section 115 is to be made a standalone provision on the rate of interest for refund of the pre-deposit paid for filing appeals, and a circular is to clarify issues on that rate. The release does not give the rate.

Refund of ITC on input services in inverted duty cases

The Council recommended amending clause (ii) of the proviso to section 54(3) and the rules so that refund of accumulated ITC in inverted duty structure cases also covers ITC on input services. The release states that this refund will be available for ITC availed on input services on or after 1 November 2026.

The date is fixed by when the ITC is availed, not by when the refund is claimed. A business with an inverted duty structure should be able to show, from November 2026 onwards, the ITC on input services availed in each period, kept apart from ITC on inputs. If the amendment is made in the form recommended, the refund will depend on that split being available.

Refund of ITC on capital goods, over 60 months

Refund of accumulated ITC on capital goods is to be allowed in refunds relating to both zero-rated supplies and inverted duty structure. The release states that this refund will be spread over 60 months and will be available for ITC availed on capital goods on or after 1 April 2027.

The release does not set out how the 60 months will be computed, or from what point. For a business planning capital expenditure around that date, the date of availing ITC on the asset is what decides eligibility on the release’s terms. Details are to come with the rules.

Section 17(5): fewer blocked credits

Section 17(5) is to be amended to remove the restriction on ITC on, among others:

• outdoor catering;
• health and life insurance;
• telecommunication towers;
• pipelines laid outside factory premises;
• free samples;
• goods destroyed or written off on expiry of shelf life as required by law.

The words “inter-alia” in the release mean the list may not be complete. Each removal takes effect only from the date of the amendment, so ITC on such supplies remains blocked until then.

Limited ITC in the same line of business

Separately, under the services recommendations, limited ITC in the same line of business is to be allowed for restaurant and outdoor catering services, hotel accommodation of value up to ₹ 7,500 per unit per day, and gym and fitness services, in the same manner as is available today for passenger transport, tour operator and motor vehicle renting services.

Fewer mismatches from April 2027

The return reforms connect with refunds, because many refund and credit disputes begin with a mismatch between returns. The Council recommended a mechanism for correcting liability and ITC in FORM GSTR-3B, through new sub-rules (1A) and (1B) in rule 61, so that GSTR-3B aligns with GSTR-1/1A/IFF and with GSTR-2B. The recommendation is that it applies from the return of April 2027, after a public consultation on the proposed mechanism.

What to do now

The dates in the release make two things worth doing at once. From November 2026, ITC on input services needs to be separately identifiable where an inverted duty refund is claimed. Before April 2027, capital purchases should be planned with the ITC date in mind for those claiming zero-rated or inverted duty refunds. For everything else, the present section 54 and rule 89 apply until the amendments are notified.

This article is intended for educational purposes only and should not be construed as professional advice. It is based on the law as understood on the date of publication; laws and regulations are subject to change, and it may not reflect later developments. Readers are advised to consult a qualified tax professional on their specific situation before taking any action based on it. CA. Mohit Gaba takes no responsibility for any action taken or decision made on the basis of this article.