Check statutory eligibility before using the new formula
Notification 05/2026–Central Tax (G.S.R. 919(E)) substitutes rule 89(5) of the CGST Rules from 1 November 2026. For a qualifying inverted-duty claim, the maximum is inverted-rated turnover multiplied by Net ITC and divided by adjusted total turnover, less the tax payable on that inverted-rated turnover. First test eligibility under the inverted-duty limb of section 54(3), including the exclusion of nil-rated or fully exempt outputs and any notified exclusions. Government guidance explains that higher-rated input services alone do not establish the required inversion where the rates on input goods and output supplies are the same.
Read the applicable text: Gazette: Notification 05/2026–Central Tax, rule 89 and RFD-01 CBIC: CGST Act section 54(3) statutory framework PIB: eligibility and credit-availment guidance.
Use the credit-availment date for input services
Net ITC includes eligible inputs and input services availed in the relevant period, and from the later start date includes qualifying capital goods attributable to that period. For input services the notified cutoff is credit availed on or after 1 November 2026. Reconcile the date of actual availment to the return and credit working; invoice date or the date of RFD-01 does not substitute for it. A service credit must otherwise be eligible. Identify reversals, unsupported claims and any duplicated credit before building the refund worksheet. Determine which version of the rule applies to the claim rather than applying the new treatment to all older accumulations.
Keep the capital-goods start separate
The new rule imports the definition of capital goods attributable to the relevant period from rule 89(4). Clause (G) and its explanation commence from 1 April 2027 and apply to eligible capital-goods ITC availed on or after that date. The attributed amount reflects one-sixtieth per covered month from the month of availment, within the specified 60-month window, less applicable reversals attributable to the months in the relevant period. Do not include full capital-goods ITC in the first month.
Use the updated statement and distinguish maximum from cash
In notified RFD-01 Statement 1, column 5 equals column 1 × column 4 ÷ column 3 − column 2. Column 3 totals columns 3a, 3b and 3c; column 4A separately identifies ITC on inputs and input services. Map turnover, tax and Net ITC to the relevant period, maintaining a tax-head bridge and the supporting outward and inward data. The formula determines a maximum, not a cash entitlement: check eligibility, available credit and applicable filing controls separately. Do not multiply the output-tax subtraction by an old apportionment factor when this substituted formula applies. Provisional sanction and final payment are separate from this computation.
Six worked illustrations
All facts and amounts are fictional. Calculations illustrate the stated assumptions, not a predetermined legal outcome.
Illustrative example 1: Basic eligible input-service inclusion
For a qualifying period assume inverted turnover ₹600,000, adjusted total turnover ₹1,000,000, inputs ITC ₹120,000, qualifying service ITC ₹30,000 and inverted output tax ₹30,000. Net ITC is ₹150,000. The maximum is ₹60,000.
Illustrative example 2: Exclude pre-cutoff service credit
Assume a claim is governed by the substituted rule and covers a relevant period containing ₹90,000 input ITC, ₹18,000 service ITC availed before 1 November and ₹12,000 eligible service ITC availed from 1 November. Net ITC is ₹102,000; the ₹18,000 does not qualify as eligible service credit for this formula.
Illustrative example 3: All turnover is inverted-rated
Assume inverted and adjusted total turnover each equal ₹400,000, Net ITC is ₹95,000 and tax payable on inverted supplies is ₹20,000. The maximum is ₹75,000.
Illustrative example 4: Output tax exceeds the allocated amount
With a 40% turnover ratio, Net ITC ₹100,000 and inverted output tax ₹45,000, the calculation is negative ₹5,000. It yields no positive refund under the formula.
Illustrative example 5: Capital-goods attribution after the start
An otherwise eligible ₹600,000 capital-goods ITC is availed in April 2027. For a relevant period covering April through June, three months give ₹30,000 before reversals. An applicable ₹6,000 reversal attributable to those months leaves ₹24,000 to include in Net ITC, subject to the other conditions.
Illustrative example 6: Check the sign and full output-tax subtraction
In a qualifying claim the turnover ratio is 75%, Net ITC ₹200,000 and tax payable on inverted supplies ₹50,000. The new maximum is ₹100,000. Multiplying the ₹50,000 subtraction by 80% would give ₹110,000 and overstate the new-rule result by ₹10,000.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Confirm inversion and applicable exclusions | Output classification, input rates and current notifications. |
| 2 | Determine the rule version and relevant period | Claim chronology and applicable legal text. |
| 3 | Reconcile inverted-rated turnover | Outward supply statement, amendments and tax working. |
| 4 | Compute adjusted total turnover | Rule 89(4) cross-reference and documented reconciliation. |
| 5 | Build inputs and service ITC populations | Eligibility and availment records by invoice. |
| 6 | Separate pre-cutoff service ITC | Return-period evidence and exception list. |
| 7 | Check qualifying capital-goods attribution | Availment month, covered months and reversals. |
| 8 | Calculate the formula and compare Statement 1 | Tax-head computation and independent arithmetic. |
| 9 | Review other claim controls | Ledger balance, exclusions and supporting records. |
| 10 | Reconcile claim versus order separately | Filed RFD-01, orders and refund reconciliation. |
Sixteen practitioner FAQs
1. When did the substituted rule start?
1 November 2026 under Notification 05/2026–Central Tax.
2. Does higher-rate input-service GST alone establish inversion?
No. The statutory eligibility test remains separate.
3. Which date controls input-service inclusion?
The date the credit was availed, with a cutoff of 1 November 2026.
4. Does a November application make older service credit eligible?
No. The relevant service credit’s availment date must satisfy the cutoff.
5. Does a November invoice prove November availment?
No. Reconcile actual availment.
6. Does the formula use all of the applicant’s gross turnover?
Use adjusted total turnover under the rule’s definition.
7. Can the output tax subtraction be apportioned using the former fraction?
Not under the substituted formula.
8. What if the formula result is negative?
There is no positive amount under the formula.
9. Is the new maximum the bank refund?
No. Other claim limits and processing apply.
10. When do the capital-goods attribution provisions begin?
1 April 2027 for eligible credit availed on or after that date.
11. Is the full capital-goods credit included at once?
No. Determine the relevant monthly attribution.
12. What if a relevant capital-goods reversal applies?
Deduct the applicable attributable reversal in the working.
13. Does this guide apply to all refund categories?
No. It focuses on the inverted-duty computation.
14. Can a prohibited product qualify because the calculation is positive?
No. Verify exclusions first.
15. Which application statement shows the formula?
Statement 1 in notified RFD-01.
16. What supports the final reconciliation?
Verified turnover, tax, credit-availment and attribution schedules tied to the application.
Official sources
Gazette: Notification 05/2026–Central Tax, rule 89 and RFD-01 CBIC: CGST Act section 54(3) statutory framework PIB: eligibility and credit-availment guidance