GST 2.0 guidelines fail to resolve refund delays, say experts

Businesses continue to struggle with delayed inverted duty refunds, despite means for quicker provisional payouts

Many large taxpayers are facing difficulties in obtaining goods and services tax (GST) refunds under the inverted duty structure (IDS), experts said, despite the Centre’s instruction to facilitate provisional refunds, including 90 per cent of eligible amounts, within seven days of acknowledgement for low-risk cases.

 

The mechanism allows businesses to claim refunds when the tax paid on inputs is higher than the tax payable on output supplies, leading to the accumulation of input tax credit. Although the government mandated such refunds under GST 2.0 guidelines issued in October 2025, experts said taxpayers with a clean compliance history are still experiencing delays, as their applications continue to be flagged as ‘risky’.

 

According to finance ministry officials, many taxpayers may not be fully familiar with the detailed documentation and information requirements under the IDS refund mechanism, which could be contributing to the issue. Officials said affected taxpayers have not yet formally represented the matter before the authorities, and the issue would be examined once such representations are received.

 

An email sent to the finance ministry seeking comments remained unanswered until the time of going to press.

 

Experts said that while delayed refunds are also being seen in central GST jurisdictions, the process becomes far more painful at the state GST jurisdiction level. According to them, state GST officers in many cases seek information beyond the prescribed requirements and hold refunds for what the industry describes as frivolous reasons.

 

Prashanth Agarwal, partner at PwC India, said that although the government’s intent is in the right direction, taxpayers’ experiences vary from state to state. “In some states, there is extra scrutiny wherein authorities are conducting what is effectively an audit before issuing the refund. At times, authorities are not issuing either the provisional refund or a deficiency memo within the 15-day timeline,” Agarwal said.

 

Experts said the lack of consistency across jurisdictions continues to remain a major concern for industry, with the refund experience often depending on the approach adopted by local authorities. Echoing similar concerns, Abhishek Jain, indirect tax head and partner at KPMG, said the provisional refund process continues to remain jurisdiction-dependent. “Faster processing and timely issuance of refunds have always been a critical ask from industry, and adequate legal provisions have helped ease compliance. However, the provisional refund process is still jurisdiction-dependent,” Jain said. “While provisional refunds must account for necessary risk parameters, industry would benefit from a calibrated approach that balances ease of compliance with the government’s imperative to safeguard revenue integrity,” he added.

 

Industry experts also flagged the absence of accountability in refund processing and called for a more technology-driven mechanism to reduce subjectivity at the field level. Bipin Sapra, partner at EY, said refunds continue to face delays because of subjective interpretation at the field level and a lack of accountability in processing timelines. “The solution lies in system-generated provisional refunds for 90 per cent of the amount if the assessee fulfils objective low-risk criteria and the documentation is complete. Refund verifications can also be shifted to post-audits for low-risk assessees to avoid delays for genuine taxpayers,” Sapra said.

 

Experts also pointed to opacity in the risk-classification mechanism under the refund process. According to Agarwal, taxpayers are often unaware of their risk status and the parameters used to determine it. In high-risk cases, provisional refunds are generally withheld, further delaying payouts. “Recently, a new requirement on the GST Network portal — providing Annexure-B purchase details through a utility — has also posed challenges while filing refund applications,” Agarwal said. He added that field formations should restrict requirements to only those documents prescribed under the Central Board of Indirect Taxes and Customs’ master circular.

 

Bimal Jain, partner at A2Z Taxcorp, said genuine taxpayers should not suffer because of excessive caution in the system. “The objective of GST refunds is not merely procedural compliance but ensuring uninterrupted business liquidity. Genuine taxpayers should not suffer because of over-cautious system validations intended to curb fraud,” he said.

 

According to Agarwal, greater transparency is needed in the process. “It is advisable that steps be taken to help taxpayers know their risk status transparently, and there should be a mechanism to improve the same in consultation with the authorities. New requirements, such as audits, should be limited to high-risk scenarios, and reasons should be provided for undertaking them,” he said.  Another important aspect is interest payable by authorities on delay in grant of refund to tax payers. "Although available under the law, practically on ground the tax payers are facing challenge in getting the same issued from authorities. This should be streamlined similar to how it is under Income tax," Agarwal added.

 

Refund Maze

 

• Refund bottlenecks continue despite GST 2.0 reforms
• Low-risk taxpayers still face refund hold-ups
• State-level GST scrutiny comes under industry fire
• Experts push for system-driven provisional refunds
• GSTN’s new Annexure-B utility raises compliance concerns