ITC of Input Services and Capital goods to Inverted Duty Refunds - The Computation Framework Changes

The amendment to Rule 89(5) changes the computation of refunds arising from an inverted duty structure. Net ITC is now defined to include ITC availed on inputs, eligible input services availed on or after 1 November 2026, and, from 1 April 2027, ITC on capital goods attributable to the relevant period under a prescribed 60-month mechanism. The maximum refund continues to be determined through a formula linking turnover of inverted-rated supplies, Net ITC, adjusted total turnover and tax payable on those supplies.

The notification also revises the order in which the electronic credit ledger must be debited for an ITC refund claim, expands the supporting invoice-level information and introduces revised refund application categories and fields. However, the text of Declaration A in the substituted FORM GST RFD-01 appears to retain an exclusion for input-service ITC in inverted-duty claims, notwithstanding the express inclusion of eligible input services in Rule 89(5). This requires careful verification before the revised form is operationalised. The changes must be applied according to their respective commencement dates, not as a single undifferentiated package.