Updated GST Refund Mechanism to Roll Out from October 2025
Instruction No. 06/2025-GST
In the 56th GST Council Meeting (3 Sept 2025), it was decided that refund processing should be risk-based and system-driven, to speed up genuine cases and flag risky ones.
- Accordingly, Rule 91(2) of CGST Rules 2017 was amended (via Notification 13/2025-CT dated 17 Sept 2025).
- From now, 90% of refund can be sanctioned provisionally if the case is low-risk as per system evaluation.
New Rule 91(2) — Provisional Refund based on Risk Score
- The GST system will automatically classify refund applications as “Low Risk” or “High Risk.”
- For Low-Risk cases:
- 90% of the claimed refund will be released provisionally by the officer.
- No detailed scrutiny required before provisional sanction.
- For High-Risk cases:
- Refund will not be sanctioned provisionally.
- The officer will carry out detailed verification as per Rule 92.
Officer’s Discretion — When Refund Can Be Withheld
Even if a refund is marked low-risk, the proper officer may decide not to issue provisional refund in specific cases, but he must:
- Record written reasons, and
- Proceed for detailed scrutiny under Rule 92.
Examples:
- Past refund issues pending in appeal,
- Previous SCN issued,
- Cases under prosecution or fraud detection, etc.
Non-Eligible Persons under Section 54(6)
As per Notification 14/2025-CT (17 Sept 2025), certain categories of taxpayers cannot get provisional refund for zero-rated supplies (exporters).
Also, those under prosecution in last 5 years for evasion > ₹2.5 crore are not eligible for provisional refund.
Systemic Restrictions
- Once provisional refund is sanctioned, it cannot be adjusted or withheld for any demand or recovery under Section 54(10)/(11).
- If a case has any pending demand or SCN, officer should process refund on final basis instead of provisional.
- Provisional refund must be avoided where earlier refund matter is sub-judice or under dispute.
Trade Facilitation — Use of Discretion Sparingly
- The new system is meant to facilitate trade, not to delay refunds.
- Therefore, the proviso to Rule 91(2) (officer’s power to deny provisional refund) must be used rarely and only with strong justification, not just for routine scrutiny.
Excess Provisional Refund — Recovery Mechanism
- If after final scrutiny it’s found that excess refund was given provisionally,
the officer will issue FORM GST RFD-08 (Show Cause Notice) under Section 54 read with Section 73 / 74 / 74A to recover the excess.
Applicability Date
- Risk-based provisional refund applies to all refund applications filed on or after 1 October 2025.
Extension to Inverted Duty Refunds (IDS)
- Earlier, 90% provisional refund was only for zero-rated supplies (exports).
- Now, GST Council recommended to extend this to Inverted Duty Structure (IDS) refunds too.
- Formal amendment to Section 54(6) will take time (via next Finance Act + State amendments).
- So, as interim trade facilitation, the Centre allowed 90% provisional refund for IDS cases filed on or after 1 Oct 2025—same process as exports.
Processing Flow (Para 3.1 to 3.4)
Step-wise:
- Refund application filed (RFD-01).
- Officer issues Acknowledgment RFD-02 or Deficiency Memo RFD-03 within prescribed timeline.
- If marked Low Risk → officer issues Provisional Refund = 90%.
- If High Risk → detailed scrutiny → final refund only after full examination.
- System will guide officer based on risk score from analytics module.
Supervision & Monitoring
- Commissioners will supervise proper implementation.
- Chief Commissioners must ensure that these trade facilitation measures are followed in letter and spirit.
- Feedback / implementation difficulties to be reported to CBIC GST Policy Wing.
Key Takeaways for Taxpayers / Exporters / CA Professionals
Faster Refunds for low-risk and compliant taxpayers.
Automated Risk Score – keep returns accurate, timely and consistent to stay in low-risk category.
No Provisional Refund if prosecution, pending SCN or appeal.
IDS Refunds also eligible for 90% provisional refund (temporary relief).
Officers’ discretion limited – must record reasons if they hold back refund.
Check refund history before filing — pending cases may affect risk score.