The Minister of Finance addressed concerns regarding challenges from the Inverted Duty Structure (IDS) under GST, highlighting that GST rates are prescribed by the GST Council, which in its 56th meeting on 3rd September 2025 recommended rationalizing the existing 4-tiered structure into a simplified 2-rate system—18% standard and 5% merit rate—with a 40% de-merit rate for select goods and services. While IDS has historically caused issues with blocked Input Tax Credit (ITC), the Council clarified that no ITC blockage is prescribed under current law. Recognizing cash flow challenges for taxpayers claiming refunds due to IDS, the Council proposed amendments to allow provisional refunds of 90% of claimed amounts, similar to zero-rated supplies. Pending formal amendments to the GST Acts, the CBIC has issued instructions to field offices to grant provisional refunds from 1st October 2025 based on system-evaluated risk, ensuring working capital for businesses is not constrained due to rate inversions.

GOVERNMENT OF INDIA
MINISTRY OF FINANCE
DEPARTMENT OF REVENUE
RAJYA SABHA
STARRED QUESTION NO *25
ANSWERED ON – 02.12.2025

INVERTED DUTY STRUCTURE CHALLENGES 

*25 SHRI PRAMOD TIWARI:

Will the Minister of Finance be pleased to state:

a. whether persistence of inverted tax slabs (Inverted Duty Structure), despite the recent GST rate cuts, continues to create challenges for businesses;

b. if so, the details thereof including the sectors affected by Input Tax Credit (ITC) blockages and the impact thereof; and

c. the steps proposed to be taken to harmonize tax slabs and ensure smoother ITC flows?

ANSWER

MINISTER OF FINANCE
SHRIMATI NIRMALA SITHARAMAN

(a), (b), and (c): A statement is laid on the Table of the House.

STATEMENT REFERRED TO IN REPLY TO THE RAJYA SABHA STARRED QUESTION NO. 25 RAISED BY SHRI PRAMOD TIWARI FOR 2^nd DECEMBER, 2025 ON INVERTED DUTY STRUCTURE CHALLENGES:

(a), (b) and (c): GST rates are prescribed on the recommendations of GST Council, which is a constitutional body comprising members from States/UTs and Centre. The GST Council in its 56^th meeting held on 3^rd September, 2025, has recommended a comprehensive rate rationalisation and structural simplification of the 4-tiered tax rate structure into a citizen-friendly 'Simple Tax' – a 2-rate structure with a Standard Rate of 18% and a Merit Rate of 5%; a special de-merit rate of 40% for a select few goods and services.

The Council has not recommended any blockage of input tax credit on supply of goods.

As per present provisions of the GST Act, there is no provision for grant of provisional refund in case of refund claims arising out of inverted duty structure. In order to provide relief to such taxpayers, the GST Council in its 56^th meeting, recommended amending the provisions of Central/State GST Acts to provide for provisional refund of 90% of the claimed amount in case of refunds arising out of inverted duty structure, on similar lines as is provided for zero rated supply refund claims.

Further, pending requisite amendments in Centre and State GST Act, 2017, instructions have been issued by the Central Board of Indirect Taxes and Customs (CBIC) to its field formations for grant of provisional refund w.e.f. 1^st October, 2025, equivalent to 90% of amount claimed as refund, arising out of Inverted Duty Structure on the basis of identification and evaluation of risk by the system. This step will ensure that the working capital of businesses involved in supply of goods having inversion in rate of inputs vis-à-vis output supplies, is not blocked.