GST Council fast-tracks refunds under inverted duty structure: What to know

From Nov 1, firms facing an IDS will get 90% refunds upfront. Here's all you need to know about inverted duty structure & changes made during the 56th GST Council meet

The Goods and Services Tax (GST) Council on Wednesday agreed on a major change to simplify how businesses claim refunds under the inverted duty structure (IDS). The new system aims to ease cash flow issues for companies by speeding up refunds and reducing delays that have long frustrated exporters and manufacturers.

 

From November 1, 2025, businesses facing an IDS will get refunds much faster -- a move that could free up thousands of crores in locked funds and smoothen cash flows, bringing much relief to businesses.

 

What is an inverted duty structure?

An inverted duty structure happens when taxes on raw materials are higher than taxes on the final product.

 

 

This creates an imbalance where businesses end up paying more GST on inputs than they can recover from sales.

 

The result: A pile-up of input tax credits (ITC) that cannot be fully used. 

 

What goods does IDS apply to?

According to Aditya Birla Capital, some examples of IDS on goods include:

• Imported tyres attract a duty of 10 per cent, while natural rubber used in their production faces a higher duty of 20 per cent.
• Solar panels are exempt from duty, but their components are taxed at rates ranging from 5 to 10 per cent.
• Seaweed is taxed at 10 per cent, whereas agar extract, its raw material, is charged 30 per cent.
• Culture media faces a 10 per cent duty, while bacterial cultures used to produce it are taxed at 30 per cent.
• Power transformers are taxed at 7.5 per cent, compared to 10 per cent on the metal tubes required to manufacture them.
• Train engines are taxed at 5 per cent, but their parts face much higher duties, ranging from 18 to 28 per cent.

Pre-GST vs post-GST inverted duty structure

Before GST came into force in 2017, India’s indirect tax system was fragmented. Different taxes were charged by the Centre and states, and credits from one tax could not be used to offset another. Any mismatch simply meant money lost, and refunds were complicated and rare.

 

After 2017, multiple levies were merged into one under the GST umbrella. This allowed refunds of unused ITC. However, businesses have complained that in practice, refunds can often take months and exclude some items like services.

 

Ahead of the 56th GST Council meeting, several industry bodies urged the Centre to address this situation. 

 

What has changed now?

On September 3, 2025, the GST Council, chaired by Finance Minister Nirmala Sitharaman, decided to overhaul the system:

 

Ninety per cent quick refunds: Businesses stuck with IDS will now get 90 per cent of their refund claims upfront, released provisionally after automated risk checks. This is similar to the system exporters already use.

 

Exclusions: Some taxpayers (details yet to be announced) will not get provisional refunds. The notice stated that “certain categories of registered persons, to be notified, will not be granted provisional refunds”.

 

Help for small exporters: The Council also removed the threshold on small export consignments. This means exporters shipping goods by courier or post can now claim refunds without limits.

 

Effective date: The new system starts on November 1, 2025. 

 

Why this matters

For companies caught in the inverted duty trap, the change is a relief. Faster refunds mean:

• Less money is stuck with the tax department
• Easier cash flow management
• More competitiveness for exporters, especially smaller players

Bottom line

The reform does not remove the inverted duty structure itself, and the rate mismatches remain. However, it does make refunds faster, reducing a major GST pain point for businesses.