GST 3.0: Govt plans automated refunds on lines of income-tax system

Priya, however, refused to give a deadline. "We will have consultations to be done, adequate safeguards have to be put in place

The government is looking at automating goods and services tax (GST) refunds, on the lines of the income tax system, as part of the next stage of reforms being conceptualised under GST 3.0, a senior tax official said.

 

“We are hoping that maybe like income tax, we will also make refunds automated. So, it’s there in our mind,” said Shashank Priya, member (GST), Central Board of Indirect Taxes and Customs (CBIC). He was speaking at an event organised by TIOL Knowledge Foundation (TKF).

 

Priya, however, refused to give a deadline. “We will have consultations and adequate safeguards have to be put in place. There is a lot of positive energy in the government to take our reforms agenda forward and make systems simpler,” he added.

 

The government under GST 2.0 allowed provisional sanction of 90 per cent of refund claims filed under the inverted duty structure (wherein tax on inputs is more than output) for applications submitted on or after October 1, 2025.

 

As an interim measure, the provisional refund process will mirror the mechanism currently followed for zero-rated supplies, with the system leveraging risk identification and evaluation tools to fast-track low-risk claims and reduce manual intervention.

 

According to experts, apart from exports and inverted duty structure, refund claims also arise in cases where tax has been erroneously paid. For instance, they occur when an inter-state supply is wrongly treated as intra-state or vice versa, or when excess tax is paid due to clerical errors.

 

Refunds are also sought for amounts paid during investigation, audit or as pre-deposit at the time of appeal, when no liability is eventually established.

 

However, such claims often face prolonged verification and procedural delays before sanction.

 

“The human interface between taxpayers and officials must certainly be reduced when it comes to the processing of refund claims. All deficiencies and information requirements should be sought electronically and digitally to ensure transparency and consistency. There have been several instances where tax officers request the same set of documents even after these have been physically submitted earlier, which causes avoidable delays,” said Abhishek A Rastogi, founder of Rastogi Chambers.

 

Priya said the government is also examining issues that are prone to dispute, including those related to Schedule 1 transactions, such as supplies between related entities and valuation of deemed supplies.

 

Besides this blocked input tax credit (ITC) under Section 75 of GST law and procedural bottlenecks are also being looked at. “There has to be GST 3.0. We are looking at all the issues and we are hopeful that, going forward, we will make the processes simpler,” he added.

 

The CBIC member said that the focus would be on universal e-invoicing, seamless data flow, and wider use of technology to simplify compliance. “One of the efforts is that e-invoices should be made more universal. They should be simpler so that we can reduce the threshold further and make that one point of data entry — from which GSTR-1 and returns can be auto-generated,” he said.

 

Turning to the GST 2.0 agenda, Priya said the government’s priority is to ensure that the benefits of tax rate rationalisation are passed on to consumers through a self-compliance approach rather than enforcement. “We have put in place certain mechanisms. We are getting price data and are going to examine it pre and post. It is a whole-of-government approach — the Ministry of Consumer Affairs also has a website that receives complaints, and we are pursuing those cases with suppliers. We are maintaining background information systems to track if benefits are not being passed on,” he added.

 

On the compensation cess, Priya reiterated that it was “always meant to lapse at some point of time,” and industry should have prepared a roadmap for its use. “The only thing is that it has been a little fast-tracked now,” he said.

 

He added, “The government has already given up so much of its revenues. So, for the Centre to take this additional burden would be hard. Why don’t we take it as a contribution of the industry towards GST 2.0? Why don’t they absorb this cost and not pass it on to consumers?”