New GST Refund System from October 2025

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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.