New GST Refund Reforms: Risk-Based Provisional Sanctioning

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Key changes in law and regulations​

Amendment to Rule 91(2) 

Effective 1 October 2025, Rule 91(2) of the CGST Rules, 2017 has been amended to provide that 90 percent of refund claims relating to zero-rated supplies shall be sanctioned provisionally by the proper officer, based on system-generated risk scores. Based on certain metrics the taxpayers would be segregated into risk categories. However, it should be noted that the government has not yet provided all the exact parameters used in that risk scoring.

Further, a new proviso to Rule 91(2) has been added to enable the officer to withhold provisional refund in specific cases and instead proceed with detailed scrutiny. The officers would be required to record reasons for such withholding in writing.

Exclusions from Provisional Refunds

As per Notification No. 14/2025–Central Tax dated 17 September 2025 read with Instruction No. 06/2025–GST dated 3 October 2025, the following categories of registered persons shall not be eligible for provisional refund:

• ​Taxpayers who have not undergone Aadhaar authentication under Rule 10B.
  
• Persons engaged in the supply of Areca nuts, Pan masala, Tobacco and manufactured tobacco substitutes, and Essential oils.
• Applicants with pending appellate proceedings relating to earlier refund claims.
• Cases where a show cause notice has been issued or an order has been passed but has not attained finality.
• Applicants prosecuted for tax evasion involving amounts exceeding ₹2.5 crore in the past five years.
  

Extension to Inverted Duty structure (IDS) Refunds

As an interim measure, the same 90 percent provisional refund mechanism will also apply to refunds on account of inverted duty structure filed on or after 1 October 2025, until the formal legislative amendment to Section 54(6) is enacted.

Refund processing under the new risk-based mechanism

STEP 1

Refund application to be filed and acknowledged as per existing process (Form GST RFD-01 to RFD-02/03).

STEP 2

System would assign a risk score to each claim in below two categories:

• Low-risk applications: 90 percent of refund will be sanctioned provisionally without detailed scrutiny.
• High-risk applications: Detailed manual examination before final sanction.
  
  

STEP 3

Following this proper officer may deny provisional refund only on a case-to-case basis, citing written reasons. In case any excess provisional refund is identified later, Form RFD-08 may be issued for recovery under Sections 73/74. It should be noted thar, refunds sanctioned under this system cannot be adjusted or withheld under Section 54(10) or (11) at the provisional stage.​

Action points for exporters and taxpayers

GST refunds in India are crucial for cash flow, compliance, and business efficiency. With the new risk-based provisional mechanism, eligible taxpayers, including exporters, need a clear strategy to maximize refunds while minimizing scrutiny.

In this regard, following action points may be undertaken by taxpayers, to mitigate risks: 

• Complete Aadhaar authentication under Rule 10B for all authorized signatories.
• Ensure timely filing and accuracy of GSTR-1 and GSTR-3B.
• Maintain consistency between invoice data and returns to avoid mismatches.
• Avoid mismatches in Input Tax Credit (ITC) claims.
• Monitor past refund disputes, show cause notices, or pending appeals, as these may impact   provisional refunds.
• Exporters in high-risk sectors should expect enhanced scrutiny.
• Keep supporting documents ready (e.g., export invoices, shipping bills, LUTs) for verification if required.
• Be prepared to respond promptly to any communication from the proper officer regarding high-risk claims.

Exporters with a clean compliance history are likely to receive faster refund credits.

Note: In absence of specific criteria or methodology used by the system to calculate or assign risk scores for provisional refunds, the above-mentioned action points are indicative and intended as general guidance, which may help exporters in mitigating potential risks associated with high-risk refund claims.

​How can we help?

​Rödl & Partner, with its deep understanding of both Indian GST law and international business practices, can provide comprehensive support to exporters and businesses under the new risk-based provisional refund mechanism. Our teams can also assist in reviewing past compliance, pending disputes, and Aadhaar authentication to assess eligibility and pre-empt potential high-risk categorization. Rödl & Partner provides expert support in assessing eligibility, preparing claims, monitoring status, and addressing disputes. Our support may help businesses turn regulatory compliance into a strategic advantage and benefit from working capital advantage. ​