Businesses claiming refunds on inverted duty structure have historically faced one frustrating reality — the refund takes months to process while your working capital stays locked up. Budget 2026 changed part of that.
The Finance Act 2026 amended Section 54(6) of the CGST Act to extend provisional refund to taxpayers claiming refund due to inverted duty structure. Previously, provisional refund (90% within 7 days) was available only for zero-rated supplies. This is now also available for inverted duty structure refund claims.
Claiming or planning to claim an inverted duty structure refund? WhatsApp us and we’ll check whether you qualify under the new provision.
Quick Summary — What Changed Under Budget 2026
| Item | Before Budget 2026 | After Budget 2026 |
| Provisional refund (Section 54(6)) | Available for zero-rated supplies only | Now also available for inverted duty structure refund claims |
| Provisional amount | 90% of refund claim | 90% of refund claim |
| Time to provisional refund | Within 7 days of acknowledgement | Within 7 days of acknowledgement |
| Final processing | After full scrutiny | After full scrutiny (unchanged) |
| Export refund threshold | Minimum amount required | Removed — any amount can now be refunded |
💡 TaxKitab Tip The inverted duty structure refund is one of the most commonly under-claimed refunds in manufacturing. Many businesses sit on blocked ITC for years without claiming because the process seemed complex. Budget 2026’s provisional refund change means 90% of your eligible claim comes back within 7 days of filing — the cash flow improvement is real and immediate. If you’ve been accumulating ITC without claiming, this is the year to address it. — From TaxKitab’s own practice experience
💡 TaxKitab Tip Before filing an inverted duty structure refund, reconcile your purchase register, GSTR-2B, and electronic credit ledger. Even a small mismatch in ITC can delay the entire refund process or trigger a deficiency memo.
What Inverted Duty Structure Actually Means
Inverted duty structure exists when the GST rate on your inputs is higher than the GST rate on your output supply. A classic example: a manufacturer buying raw materials at 18% GST but selling finished goods at 5% GST. The business keeps accumulating ITC on inputs that it can never fully offset against output liability because the output rate is lower. This accumulated, unusable ITC is exactly what the inverted duty structure refund is designed to return.
Which Businesses Are Most Affected
Manufacturers of goods that sit at lower GST rates while their inputs attract higher rates. The textiles sector was historically one of the most affected — inputs at 12% or 18%, outputs at 5%. Under the new GST 2.0 structure, this interplay has shifted for some categories. Verify your specific input-output rate combination under the new post-September 2025 rates before assuming your refund eligibility is the same as before.
How the Provisional Refund Now Works
File your refund application in Form RFD-01 through the GST portal. The officer acknowledges the claim and issues Form RFD-02. Within 7 working days of acknowledgement, you receive a provisional refund of 90% of the claimed amount in Form RFD-04. The remaining 10% is processed after full scrutiny and verification. If the officer identifies an issue during scrutiny, they can issue a notice — but the 90% you already received stays with you unless specifically directed otherwise.
The Export Refund Threshold Removal
Budget 2026 also removed the minimum threshold for export refunds under Section 54(14). Previously, refund claims below a specified amount could be withheld pending consolidation. This minimum threshold is now removed for exports with payment of GST — any amount, even small export refund claims, can now be processed.
Frequently Asked Questions
Does the inverted duty structure refund apply to services or only goods?
The inverted duty structure refund applies primarily to goods. Service providers facing inverted duty can claim ITC against their other tax liabilities, but the specific refund mechanism under Section 54(3) is oriented toward goods-centric inverted duty scenarios. Get specific advice for your service category.
Can I claim a refund for ITC accumulated over multiple years?
Yes, subject to the time limits under Section 54 — refund claims must generally be filed within 2 years from the relevant date. Accumulated ITC from older periods needs assessment against this timeline before filing.
Does the provisional refund mean my full claim is approved?
No. The 90% provisional payment is made pending full scrutiny. If scrutiny finds an issue with part of the claim, the officer can issue a notice or reduce the final refund accordingly. The provisional payment is not an approval.
Do I need a CA certificate for an inverted duty structure refund claim?
For refund claims above certain thresholds or in specific categories, a CA certificate may be required — verify current requirements under Rule 89(2) and GST portal guidance before filing.
Can a GST refund application be withdrawn after filing?
Yes. In certain cases, a refund application can be withdrawn before the refund is sanctioned, subject to the GST Rules and the functionality available on the GST portal. If a mistake is identified early, withdrawing and filing a fresh application may be preferable to responding to a deficiency memo.
References
- CGST Act, 2017 — Section 54(6) as amended by Finance Act 2026
- Finance Act 2026 — Amendment removing export refund minimum threshold (Section 54(14))
- CGST Act, 2017 — Section 54(3) (refund for inverted duty structure)
⚠️ The new provisional refund provision is effective from the date the Finance Act 2026 received assent (March 2026). Verify current implementation status and any CBIC circulars on operational procedure at cbic.gov.in before filing.
Last Updated: 09 July 2026
Reviewed By: TaxKitab Team
Call or WhatsApp: +91 7448200422 Email: info@taxkitab.com Website: taxkitab.com See our GST Return Filing service or Contact us. For a complete guide to GST refund procedures, see our GST Filing Mistakes That Cost SMEs Lakhs (₹179).
