Three GST Changes

From 1 November 2026, three GST rules change in your favour. Year-end and volume discounts get easier. Refunds for inverted duty businesses get faster. Small exporters get relief.

Chhota CFO helps MSMEs, startups and growing businesses stay updated with GST regulations and manage their tax compliance efficiently.

The Finance Ministry notified these changes through Notification No. 03/2026 Central Tax, dated 26 October 2026. It brings Sections 153, 154 and 155 of the Finance Act, 2026 into force. These sections amend Sections 15, 34 and 54 of the CGST Act, 2017. The GST Council first recommended them at its 56th meeting in September 2025, and the Budget 2026-27 carried them into law.

Here is what changes for you, in short:

• Post-sale discounts: You no longer need a discount agreement before the sale. You no longer need to link the discount to specific invoices. Issue a GST credit note and make sure your buyer reverses the matching input tax credit (ITC).
• Inverted duty refunds: If GST on your inputs is higher than GST on your output, you now get 90% of your refund claim on a provisional basis, after risk checks.
• Export refunds below Rs 1,000: The Rs 1,000 minimum refund rule no longer applies to goods exported with payment of IGST.

A companion notification, Notification No. 05/2026 Central Tax (also dated 26 October 2026), amends the CGST Rules. It adds ITC on input services to inverted duty refunds from 1 November 2026, and ITC on capital goods from 1 April 2027.

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Before vs After: What Changed on 1 November 2026

Change 1: Post-Sale Discounts Now Reduce Your GST

You now pay GST only on the price your customer pays after discount, even if you decide the discount after the sale.

The old problem

Most businesses fix year-end or target discounts after the sales happen. A distributor hits a target in March. A brand clears old stock with a retailer in Q4. Under the old Section 15(3)(b), these discounts reduced GST value only if two tests were met:

1. The discount was agreed in writing before or at the time of supply.
2. The discount was linked to specific invoices.

Most real-world discounts failed both tests. Suppliers issued “financial” credit notes without GST. They paid GST on money they never received. Tax officers also raised disputes, treating some dealer discounts as payment for promotion services.

The new rule

From 1 November 2026, a post-sale discount reduces taxable value when two conditions are met:

• The supplier issues a GST credit note under Section 34.
• The recipient reverses the ITC attributable to that discount.

The law now links the supplier’s tax reduction to the buyer’s ITC reversal. The government gets its tax either way. You get a cleaner, dispute-free route.

Worked example in INR

Your company sells electronics worth Rs 1,00,00,000 to Dealer A during FY 2026-27 at 18% GST. In March 2027, you give Dealer A a 5% target discount of Rs 5,00,000. No agreement existed at the time of sale.

On a Rs 10 crore annual dealer network with 5% post-sale discounts, that is Rs 9,00,000 of GST you stop overpaying each year.

Watch the deadline

Section 34(2) still applies. You must declare the credit note in your return by 30 November after the end of the financial year, or the date you file the annual return, whichever comes first. For FY 2026-27 sales, that means 30 November 2027 at the latest. Miss it and the discount stays outside GST.

Who gains the most

• FMCG, pharma and consumer durables brands with dealer target schemes
• Distributors with quarterly or annual turnover discounts
• B2B SaaS and service firms offering volume rebates
• Manufacturers running year-end stock clearance deals

Change 2: 90% Provisional Refund for Inverted Duty Businesses

If your input GST is higher than your output GST, you now get 90% of your refund within days, not months.

What is an inverted duty structure?

You buy inputs at a higher GST rate and sell at a lower rate. ITC piles up in your electronic credit ledger. You cannot use it, so your working capital stays locked.

Common examples after GST 2.0 rate cuts:

• Textile and garment makers (dyes, chemicals and trims at 18%, garments at 5%)
• Footwear and fertilizer manufacturers
• Solar equipment and renewable energy suppliers
• Food processors buying packaging at 18% and selling food at 5%

What changed

The amended Section 54(6) extends the 90% provisional refund to unutilized ITC under clause (ii) of the first proviso to Section 54(3). Until now, only exporters and SEZ suppliers had this facility in the law. An interim administrative arrangement existed for inverted duty claims. It now has a statutory footing.

The amended Rule 91(2) adds speed. The GST portal generates the provisional refund order in Form GST RFD-04, based on system risk checks, within three working days of the acknowledgement.

Worked example in INR

A garment unit in Tiruppur buys dyes, chemicals and trims at 18% GST and sells garments at 5%. Its monthly refund claim of accumulated ITC is Rs 8,00,000.

Over 12 months, this unit frees up Rs 86,40,000 in cash much earlier than before.

Input services now count too

Notification No. 05/2026 Central Tax substitutes Rule 89(5). The refund formula is now:

\text{Maximum Refund} = \frac{\text{Turnover of inverted rated supply} \times \text{Net ITC}}{\text{Adjusted Total Turnover}} – \text{Tax payable on inverted rated supply}

“Net ITC” now covers:

• ITC on inputs (as before)
• ITC on input services availed on or after 1 November 2026
• ITC on capital goods availed on or after 1 April 2027, spread over 60 months

This reverses the position the Supreme Court upheld in the VKC Footsteps case, where input services stayed outside the refund formula. Note one limit: input services increase your refund amount. They do not by themselves create an inverted duty structure. The input vs output rate test still decides eligibility.

Who does not get the provisional refund

Notification No. 14/2025 Central Tax already bars certain persons from provisional refunds under Section 54(6). These include taxpayers who have not completed Aadhaar authentication and suppliers of pan masala, tobacco and areca nuts. Check your status before you rely on the 90% cash flow.

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Change 3: Relief for Small Exporters

Exporters of goods who pay IGST on exports now get refunds of any size, even below Rs 1,000.

Section 54(14) earlier blocked any refund below Rs 1,000. For a small exporter sending samples or low-value parcels with IGST paid, that meant lost money. The amendment removes this limit for refunds of tax paid on goods exported out of India with payment of tax.

The Rs 1,000 limit still applies to:

• Export of services
• Exports under LUT (without payment of tax) claiming unutilized ITC
• Excess balance in the electronic cash ledger and other refund types

A separate rule change also helps exporters under LUT. From 1 November 2026, Rule 89(4)(C) no longer caps the turnover of zero-rated goods at 1.5 times the value of similar goods sold in India. Exporters with premium export pricing get their full refund.

Businesses dealing with multiple taxable products and services can refer to this GST rate and HSN code guide for classification information.

Your 8-Point Action Checklist

Act this month. The benefits apply only if your paperwork and systems match the new rules.

For suppliers giving discounts

• ☐ List every discount scheme you run: target, volume, year-end, cash, clearance.
• ☐ Move post-sale discounts from financial credit notes to GST credit notes.
• ☐ Update your ERP or Tally to issue GST credit notes with tax and report them in GSTR-1.
• ☐ Write to your dealers. Tell them to reverse the matching ITC in GSTR-3B. Your tax reduction depends on their reversal.
• ☐ Diarise the Section 34(2) cut-off: 30 November after year-end.

For buyers receiving discounts

• ☐ Track GST credit notes in GSTR-2B every month and reverse ITC on time to avoid interest under Section 50.

For inverted duty and export businesses

• ☐ Tag ITC on input services separately from 1 November 2026. Tag capital goods ITC separately from 1 April 2027.
• ☐ Reconcile GSTR-1, GSTR-3B and GSTR-2B before filing RFD-01. Clean data passes system risk checks and gets the 90% refund faster.

Open points to watch

• Transitional cases: Discounts given after 1 November 2026 on supplies made before that date. The notification gives no transition rule.
• Unregistered or composition buyers: They have no ITC to reverse. How suppliers adjust tax in these cases needs CBIC clarity.
• Old circulars: Earlier CBIC clarifications on post-sale discounts were written for the old law and need a fresh look.

Why Choose Chhota CFO for GST Compliance?

Chhota CFO supports MSMEs, startups and growing businesses with practical GST and financial compliance solutions.

• GST Compliance Support: Assistance with GST returns, reconciliations and regulatory updates.
• Credit Note Management: Guidance on implementing the revised post-sale discount provisions.
• GST Refund Assistance: Support with inverted duty and export refund claims.
• ITC Reconciliation: Help reconciling GSTR-1, GSTR-3B and GSTR-2B.
• Business-Focused Guidance: Practical support to improve compliance and manage cash flow.

With Chhota CFO, businesses can navigate changing GST requirements with greater confidence.

Need Help Applying These Changes?

Need help implementing the latest GST amendments? Connect with Chhota CFO for GST compliance, credit note management and refund filing support.

Talk to Our GST Experts

Write to mgmt@chhotacfo.com or call +91 97397 36999. Visit www.chhotacfo.com