GST Refund Rules 2026: Input Services in Inverted Duty Refunds, Faster Processing and Rule 86A Orders

The short answer

Notification No. 05/2026-Central Tax (the CGST (Amendment) Rules, 2026, dated 26 October 2026) rewrites the refund rules and the rule on blocking input tax credit:

• Inverted duty refunds now count input services. From 1 November 2026, the rule 89(5) formula includes ITC on input services, but only ITC availed on or after 1 November 2026. Capital goods enter the formula from 1 April 2027, spread over 60 months.
• Refunds move onto the system. The officer must acknowledge the claim or point out deficiencies within ten days (down from fifteen); otherwise it is deemed acknowledged. The portal itself generates the provisional refund order within three working days, on a system risk assessment.
• A new RFD-01 applies from 1 December 2026, with new statements and declarations.
• Rule 86A blocking gets a written order and an objection route from 1 April 2027: an order in DRC-26, an objection in DRC-27, a hearing, and a decision in DRC-28.

Inverted duty structure: the new rule 89(5) formula

From 1 November 2026 the formula reads:

Maximum refund = (Turnover of inverted rated supply of goods and services × Net ITC ÷ Adjusted Total Turnover) − tax payable on that inverted rated supply.

The change is in what counts as Net ITC:

• ITC on inputs availed in the relevant period;
• ITC on eligible input services, meaning input services on which ITC was availed on or after 1 November 2026;
• from 1 April 2027, the ITC on capital goods attributable to the relevant period (see below).

Input-service ITC availed before 1 November 2026 stays outside the formula. A manufacturer or trader with inverted rates should therefore separate input-service credit availed before and after that date in its working papers, starting with the November 2026 return.

The new RFD-01 instructions also contemplate two separate claims where credit builds up both because input rates exceed output rates and because outward supplies are made at a concessional rate under a notification. Each claim reports its outward supplies only in its own statement (1A or 1B).

Capital goods from 1 April 2027: the 60-month spread

From 1 April 2027 capital-goods ITC enters both refund formulas: rule 89(4) for zero-rated supplies and rule 89(5) for inverted rates. It is not counted in one go. Only capital goods on which ITC was availed on or after 1 April 2027, within the 59 months before the end of the relevant period, qualify. The amount is:

ITC on capital goods = Σ (1/60 × eligible ITC availed on the capital goods × number of months) − reversals attributable to the months in the relevant period.

The number of months is the part of the relevant period falling within the 60 months starting with the month the ITC was availed. In effect, a machine's credit is spread evenly over five years. Each refund period picks up the slice that falls within it.

A claim that includes capital-goods credit must carry a declaration (new clause (p) of rule 89(2)). It states that the capital goods have not been sold, disposed of or permanently removed from the business, that they are eligible for ITC, and that they are used for the zero-rated or inverted rated supplies.

Zero-rated supplies: the 1.5× cap is gone

For refunds on exports without payment of tax, rule 89(4) capped the turnover of zero-rated goods at 1.5 times the value of like goods supplied domestically by the same or a similarly placed supplier, where that was lower. From 1 November 2026 the 1.5× limb is omitted. For exports of services, the new RFD-01 makes BRC or FIRC details mandatory. For exports of goods, shipping bill and EGM details are mandatory.

Faster processing: rules 90, 91 and 92

• Acknowledgement in ten days. The officer must issue the acknowledgement (RFD-02) or a deficiency memo (RFD-03) within ten days of filing.
• Deemed acknowledgement. If neither is issued in ten days, new rule 90(3A) treats the application as acknowledged and the portal issues the RFD-02. The time limit in section 54(7) for deciding the refund runs from the date of filing.
• System-generated provisional refund. Substituted rule 91(2) has the portal generate the provisional order (RFD-04) within three working days of acknowledgement, based on the system's identification and evaluation of risk. The officer need not revalidate it, and the payment order (RFD-05) may also come through the portal.
• System-generated final orders. New rule 92(1B) has the portal generate the RFD-06 for a refund of electronic cash ledger balance under section 49(6), showing any amount adjusted against outstanding demands. Rule 92(4) allows the portal, as well as the officer, to determine the amount payable.
• Facilitation centres are dropped from rules 89(1) and 89(1A); applications are filed on the portal.

How the credit ledger is debited

When you file a refund of ITC, substituted rule 89(3) fixes the order of the debit:

1. integrated tax, to the extent available;
2. then central tax and State (or UT) tax equally;
3. if one of those two falls short, the balance from the other.

Rule 86(3), which requires the ledger to be debited when a refund is claimed, now points to this order.

The new RFD-01 (from 1 December 2026)

The substituted form asks for invoice details rather than just numbers and dates. It adds:

• a statement of invoices received with ITC details for unutilised-ITC claims (new clause (n));
• a statement linking invoices to the recipient's shipping bills for supplies to merchant exporters under Notification 40/2017-CT(R) or 41/2017-IT(R) (clause (ha));
• a declaration that the applicant has not been prosecuted for an offence where tax evaded exceeds ₹250 lakh in the five years before the claim period. This applies to unutilised-ITC refunds and refunds on zero-rated supplies with payment of tax (clause (o)).

Statement 1A is based on GSTR-1 as amended by GSTR-1A, and where invoices are amended the refund is computed on the amended value.

Rule 86A from 1 April 2027: blocking ITC with an order and an objection

Today rule 86A lets the Commissioner, or an officer authorised by him not below the rank of Assistant Commissioner, disallow debit of credit in the electronic credit ledger. From 1 April 2027:

• the power moves to the proper officer;
• the restriction is imposed by an order in DRC-26 on the portal, stating the amount and the reasons;
• the order lasts until the earlier of one year or a further order lifting it when the conditions no longer exist;
• you can file an objection in DRC-27. The officer must give a reasonable opportunity of being heard and then decide in DRC-28: Part A allows the debit, Part B rejects the objection.

One point to note: the hearing comes after the block, on your objection. The amended rule does not require a hearing before the order is made.

What we have not covered

Notification No. 03/2026-Central Tax brings sections 153 to 155 of the Finance Act, 2026 into force on 1 November 2026. This article is written from the amended rules; where a refund turns on the wording of section 54 itself as amended, read the Act text before relying on the rule alone.

What to do now

• Inverted-rate businesses: from November 2026, track input-service ITC availed on or after 1 November 2026 separately. It now counts in your refund.
• Exporters: keep BRC/FIRC, shipping bill and EGM details ready for the December 2026 RFD-01.
• Planning capital expenditure: credit on capital goods availed from 1 April 2027 can feed refunds over 60 months. Keep an asset-wise ITC register from that date.
• Filed a claim and heard nothing in ten days? Check the portal for a deemed RFD-02; the section 54(7) clock runs from filing.
• Credit blocked after April 2027: file DRC-27 with your evidence and ask for the hearing the rule now requires.

Related: Circulars 258 and 259 on notices, appeals and pre-deposit refunds, and our 57th GST Council overview.

Source: Notification No. 05/2026-Central Tax dated 26 October 2026 (CGST (Amendment) Rules, 2026), paras 17-22 and the substituted FORM GST RFD-01, read from the copy on CBIC's Tax Information Portal. Commencement dates are as stated in the notification. This article explains the rule changes; it is not legal advice on a particular case.