For many businesses, especially exporters and those with an inverted duty structure, waiting for a GST refund can feel like running a marathon. You’ve paid taxes on your inputs, but the process of getting that money back can be slow, tying up essential working capital that your business needs to grow. It’s a common pain point that can strain finances and create uncertainty.
The GST Council has heard these concerns and is introducing a significant change: a system for sanctioning provisional refunds. This new framework, set to be operational from November 1, 2025, promises to unlock your funds faster, improve cash flow, and simplify the entire refund process.
This article will break down everything you need to know about the new provisional GST refund system. We'll explore what it is, how it solves current problems, who benefits the most, and what you can expect when it rolls out.
The problem: Why GST refunds are a challenge
Under the GST regime, businesses can claim a refund of the unutilized Input Tax Credit (ITC) in two primary situations:
- Zero-Rated Supplies: This mainly includes exports and supplies to Special Economic Zones (SEZs). Since these supplies are not taxed at the final stage, businesses can claim a refund of the GST paid on their inputs.
- Inverted Duty Structure: This occurs when the GST rate on inputs (raw materials) is higher than the GST rate on the final output (finished goods). This imbalance results in an accumulation of ITC that can be claimed as a refund.
While the refund mechanism exists, the process can be lengthy. It involves filing an application, which is then scrutinized by a proper officer. This verification process can take time, leading to significant delays in receiving the funds. For a business, this locked-up capital means less money for operations, expansion, or paying suppliers.
The solution: Provisional refunds based on system evaluation
To address these delays, a new amendment allows for the sanctioning of a provisional refund. This isn't a final settlement, but a significant portion of your claimed refund that gets released quickly, while the detailed verification continues in the background.
The key to this new system is that it will be based on risk identification and evaluation by the GST Network (GSTN) itself. The system will assess the risk profile of a registered person based on their compliance history and other parameters. If the business is deemed low-risk, the system will clear the way for a swift provisional refund.
This marks a shift towards a trust-based system, where compliant businesses are rewarded with faster access to their funds.
Key features of the new provisional refund system
The upcoming changes, effective from November 1, 2025, are designed to be a game-changer for businesses eligible for refunds. Here are the main features:
1. 90% refund for zero-rated supplies
Exporters and businesses supplying to SEZs will see the most significant impact. Under the new rules, they will be able to receive 90% of their claimed refund amount on a provisional basis. This means the bulk of your refund will be in your bank account much faster, with the remaining 10% released after the final verification is complete.
This change directly tackles the working capital crunch faced by exporters, helping them stay competitive in the global market.
2. 90% refund for inverted duty structure
Businesses dealing with an inverted duty structure will also benefit greatly. They too will be eligible to receive 90% of their refund amount provisionally. This is a massive relief for industries where the input costs carry a higher tax rate than the final product, as it prevents their capital from being indefinitely blocked in the tax system.
3. Improved cash flow and reduced wait times
The core benefit of this new framework is the direct improvement in your business's financial health.
- Improving cash flow: By unblocking up to 90% of your refund amount quickly, you have more liquid cash to manage daily operations, pay suppliers on time, invest in inventory, or fund growth initiatives.
- Reducing wait time: The system-driven approach minimizes manual intervention at the initial stage, drastically cutting down the processing time for the provisional amount.
4. Removal of the ₹1,000 limit for low-value export refunds
Previously, there was a minimum limit of ₹1,000 for claiming a refund on exports. This discouraged many small and micro-exporters from going through the process for low-value shipments, as the effort was not worth the small refund amount.
The GST Council has recommended removing this threshold. This is a welcome move that will encourage smaller businesses to claim every rupee they are entitled to, promoting more inclusive growth in the export sector.
Who are not eligible for provisional refund
While the provisional refund system is a significant step forward, it will not be available to everyone. The trust-based model relies on a taxpayer's compliance history.
The GST Council has recommended the issuance of a notification that will specify certain categories of registered persons who may not be granted a refund on a provisional basis. While the exact criteria are yet to be announced, it is expected that businesses with a poor compliance record, a history of fraudulent activities, or those flagged as high-risk by the GSTN system may be excluded from this facility.
This approach ensures that the system's benefits are directed towards genuine and compliant taxpayers, while maintaining checks and balances to prevent misuse.
Key Takeaways
- Provisional GST refunds will be operational from November 1, 2025, enabling faster release of funds to businesses.
- Eligible businesses can receive 90% of their refund amount quickly for zero-rated supplies (like exports/SEZs) and inverted duty structure claims, significantly improving cash flow.
- The system uses risk evaluation to determine provisional refunds, rewarding compliant and low-risk taxpayers.
- The ₹1,000 limit for export refunds has been removed, allowing even small value refunds to be processed.
- Certain registered persons may be excluded from provisional refunds based on compliance history, so maintaining good GST compliance is more important than ever.
