The Goods and Services Tax (GST) Council has introduced a major reform that promises to bring relief to businesses grappling with delayed refunds under the inverted duty structure (IDS). Starting November 1, 2025, companies will be able to access refunds of unused input tax credits (ITC) much faster, with an upfront release of 90% of the claimed refunds.

This step is expected to free up substantial working capital for exporters and manufacturers, smoothen cash flows, and enhance global competitiveness.

What is an Inverted Duty Structure?

An inverted duty structure arises when the tax on raw materials is higher than that on the finished product. This creates a mismatch because companies pay more GST on inputs than they can recover from sales.

Result: Unused input tax credit (ITC) piles up, locking companies’ funds and straining cash flow.

Goods Commonly Affected by IDS

According to industry insights, several goods face this mismatch:

Imported tyres (10% duty) vs. natural rubber used in their production (20%).

Solar panels (exempt) vs. components taxed at 5–10%.

Seaweed (10%) vs. agar extract used to make it (30%).

Culture media (10%) vs. bacterial cultures (30%).

Power transformers (7.5%) vs. metal tubes for manufacturing (10%).

Train engines (5%) vs. parts that attract 18–28%.

Pre-GST vs. Post-GST IDS

Before GST (pre-2017): India’s tax system was fragmented. Different indirect taxes levied by the Centre and states can’t be cross-utilized. Refunds were complicated and rare, meaning businesses simply lost money.

After GST (2017 onwards): Multiple taxes were consolidated. Businesses could claim refunds for unused ITC, but in practice, delays in processing and exclusions (such as ITC from services) created frustration among businesses.

What Has Changed Now?

The GST Council decision on September 3, 2025, chaired by Finance Minister Nirmala Sitharaman, introduced these reforms:

90% Quick Refunds: Businesses under IDS will now receive 90% of claims upfront as provisional refunds after automated checks, following a model already in place for exporters.

Exclusions Apply: Some taxpayers (yet to be specifically notified) will not be eligible for provisional refunds.

Boost for Small Exporters: Removal of threshold on small export consignments allows exporters shipping goods through courier or post to claim refunds without restrictions.

Effective Date: The New refund system begins on November 1, 2025.

Why This Matters for Businesses

Unlocks trapped capital, improving liquidity.

Reduces dependency on working capital loans.

Enhances competitiveness for exporters in international markets.

Particularly benefits MSMEs and small exporters reliant on quick fund access.

FAQs

1. Does this reform remove the inverted duty structure itself?
No. The duty mismatches remain. The change only makes refunds faster and more accessible.

2. Who will benefit most from these changes?
Manufacturers, exporters, and MSMEs facing cash flow issues due to delayed refunds will benefit. Exporters using courier or postal consignments stand to gain significantly.

3. Will all taxpayers get provisional refunds automatically?
Not exactly. The Council has clarified that certain categories of taxpayers (yet to be announced) will be excluded from provisional refunds.

4. When will the new refund process apply?
The system will be effective from November 1, 2025.

5. How does this compare to earlier refund timelines?
Previously, refunds could take several months. Now, companies will get 90% of refunds upfront, with the balance processed after verification.