Introduction to the GST Amendments under the Finance Act, 2026
The Finance Act, 2026 has introduced five amending sections covering post-supply discounts, credit notes, provisional refunds, appeals against conflicting advance rulings and the place of supply of intermediary services. These amendments aim to simplify GST compliance, facilitate refunds and address practical difficulties faced by taxpayers.
The amendments have different effective dates. Sections 153 to 155 came into force on 01.11.2026, vide Notification No. 03/2026-Central Tax dated 26.10.2026, while Sections 156 and 157 became effective from 01.04.2026 and 30.03.2026, respectively. This article examines all five sections, explaining the changes in the existing law and their practical implications.
1. Post-Supply Discounts No Longer Require a Pre-Existing Agreement
Section 153 of the Finance Act, 2026 has substituted Section 15(3)(b) of the CGST Act, 2017 with effect from 01.11.2026, bringing an important change in the GST treatment of post-supply discounts. Under the earlier provision, a discount granted after the supply could be excluded from the taxable value only when it was agreed upon before or at the time of supply, specifically linked to the relevant invoices, and the recipient reversed the corresponding input tax credit (ITC). All these conditions had to be satisfied. Consequently, where a supplier granted a genuine commercial discount without a prior agreement or specific invoice linkage, the taxable value could not ordinarily be reduced under Section 15(3)(b).
This restriction created practical difficulties for businesses, particularly where discounts were determined after reviewing sales performance, turnover targets or market conditions. For instance, manufacturers and distributors often finalise year-end discounts, additional trade incentives or promotional schemes only after examining actual sales. Such discounts may be commercially justified even though their amount or terms were not settled when the original supplies were made. The amended Section 15(3)(b) removes the requirements of a prior agreement and specific invoice-level linkage. Instead, the supplier must issue a credit note under Section 34, and the recipient must reverse the ITC attributable to the discount.
For example, suppose a manufacturer supplies goods worth ₹50 lakh to a distributor and subsequently grants a discount of ₹2 lakh after reviewing the distributor's sales performance. Under the earlier provision, the absence of a qualifying prior agreement could prevent the manufacturer from reducing the taxable value. Under the amended provision, the manufacturer may give effect to the discount through a GST credit note, subject to compliance with Sections 15(3)(b) and 34 and the corresponding ITC reversal by the distributor. The amendment thus provides greater commercial flexibility without dispensing with the statutory safeguards. A discount must still relate to the underlying taxable supply, and a mere financial adjustment or commercial incentive does not automatically qualify for reduction of taxable value.
2. Credit Notes Become the Statutory Mechanism for Post-Supply Discounts
Section 154 of the Finance Act, 2026 amends Section 34(1) of the CGST Act, effective from 01.11.2026. The amendment expressly includes post-supply discounts covered by Section 15(3)(b) among the circumstances in which a supplier may issue a GST credit note.
Before this amendment, Section 34(1) permitted credit notes in specified situations, including where the taxable value or tax charged exceeded the amount payable, goods were returned, or the goods or services supplied were found deficient. The amended provision expressly adds a further situation where a discount referred to in Section 15(3)(b) is granted.
The amendments to Sections 15(3)(b) and 34(1) must be read together. Section 15 sets out the conditions for excluding a post-supply discount from the taxable value, while Section 34 provides the mechanism by which the supplier can give effect to that reduction. The corresponding ITC reversal by the recipient ensures that the tax adjustment is reflected on both sides of the transaction.
Consider a supplier who issues an invoice for ₹10 lakh plus GST at 18%, amounting to ₹1.80 lakh. Subsequently, the supplier grants a discount of ₹1 lakh. Where the amended statutory conditions are satisfied, the supplier may issue a GST credit note reflecting the discount and the corresponding tax adjustment of ₹18,000. The recipient must reverse the related ITC of ₹18,000.
The supplier must also comply with the applicable requirements of Section 34, including the statutory time limit for reporting credit notes. The amendment simplifies the eligibility conditions for post-supply discounts but does not dispense with credit note compliance.
Businesses should therefore review their discount policies, accounting systems and documentation procedures. Proper coordination between suppliers and recipients will help ensure the credit note and corresponding ITC reversal are correctly reflected in their GST records.
3. Provisional Refunds Are Extended to Inverted Duty Structure Cases
Section 155 of the Finance Act, 2026 amends Section 54(6) of the CGST Act, effective from 01.11.2026. This amendment extends the facility of provisional refunds to eligible claims arising from an inverted duty structure.
An inverted duty structure generally arises when the GST rate on inputs exceeds the GST rate on outward supplies, resulting in an accumulation of unutilised input tax credit. Section 54(3), subject to its conditions and restrictions, permits refunds of eligible accumulated ITC in such circumstances.
Before the amendment, Section 54(6) expressly provided for provisional refunds of up to 90% of the amount claimed in cases involving zero-rated supplies. Claims arising from an inverted duty structure were not expressly included within this statutory facility.
The amended provision brings eligible inverted duty structure refund claims within the scope of provisional refunds of up to 90%. The proper officer may grant such refunds in the prescribed manner, subject to applicable conditions, limitations, and safeguards, and then settle them finally after verification.
For example, suppose a manufacturer has accumulated unutilised ITC of ₹25 lakh due to an inverted duty structure. After applying the prescribed refund formula and other applicable conditions, the admissible refund claim is determined at ₹20 lakh. Under the amended Section 54(6), the proper officer may sanction a provisional refund of up to ₹18 lakh (90% of ₹20 lakh), subject to the prescribed conditions and safeguards. The final refund amount will be determined after verification, with appropriate adjustment of the amount already sanctioned provisionally.
This amendment can improve the working capital position of businesses affected by accumulated ITC. Instead of waiting for the entire verification process to complete, eligible taxpayers may receive a substantial portion of their refund provisionally.
It is relevant that CBIC Instruction No. 06/2025-GST dated 03.10.2025 had already provided for system-based, risk-driven processing of inverted duty structure refund applications filed on or after 01.10.2025. The statutory amendment now expressly recognises provisional refunds for this category.
Nevertheless, the expression “may” in Section 54(6) is important. The amendment does not provide an unconditional right to receive 90% of every refund claim. Eligibility, verification requirements, prescribed safeguards and final adjustment continue to govern the refund process.
Small Refunds on Export of Goods Are No Longer Barred by the Minimum Threshold
Section 155 has also amended Section 54(14) of the CGST Act, effective from 01.11.2026, providing relief to exporters claiming refunds of tax paid on goods exported out of India.
Previously, Section 54(14) prohibited payment of refunds under Section 54(5) or Section 54(6) where the amount was less than ₹1,000. This restriction applied even to small refund claims for exports of goods made with tax paid.
The amended provision removes the ₹1,000 minimum threshold specifically for refunds of tax paid on goods exported out of India. Consequently, such refunds are no longer barred merely because the amount involved is below ₹1,000.
For example, where an exporter is entitled to a refund of ₹750 on goods exported with payment of IGST, the claim will no longer be rejected solely because it falls below the earlier monetary threshold. The exporter must, of course, satisfy the other applicable statutory requirements.
The relief is deliberately limited. The minimum threshold of ₹1,000 continues for other refund categories covered by Section 54(14), including refund claims for unutilised ITC arising from zero-rated supplies without payment of tax or an inverted duty structure.
This distinction matters because not all export-related refunds are treated the same. The amendment specifically benefits refunds of tax paid on exported goods and should not be interpreted as a general abolition of the minimum threshold for every GST refund.
Although the monetary amount involved in individual claims may be small, the amendment removes an unnecessary restriction and provides relief to exporters whose otherwise admissible refunds fall below the earlier limit.
The 57th GST Council Recommends Wider Refunds of Accumulated ITC
The 57th GST Council Meeting held on 08.10.2026 recommended amendments to Section 54(3) of the CGST Act, 2017 and the relevant Rules to widen the scope of refunds of accumulated ITC. For inverted duty structure cases, the Council recommended allowing refunds of ITC on input services availed on or after 01.11.2026. It also recommended extending refunds of ITC on capital goods in both inverted duty structure and zero-rated supply cases, for credit availed on or after 01.04.2027, with the refundable credit spread over 60 months.
These proposed changes are expected to reduce the accumulation of unutilised ITC and improve taxpayers' working capital position
4. Existing Authorities May Hear Appeals Until the National Appellate Authority Is Constituted
Section 156 of the Finance Act, 2026 inserted sub-section (1A) in Section 101A of the CGST Act, effective from 01.04.2026. The amendment addresses the absence of a constituted National Appellate Authority for Advance Ruling.
The GST advance ruling mechanism allows taxpayers to obtain decisions on specified questions relating to their proposed or existing transactions. However, Appellate Authorities for Advance Ruling in different States or Union Territories may deliver conflicting decisions on the same question involving the same applicant.The statutory framework envisages a National Appellate Authority to address such differences. However, the failure to constitute that authority has created a practical difficulty in implementing the appellate mechanism.
The newly inserted Section 101A(1A) authorises the Government, on the recommendations of the GST Council, to empower an existing authority, including a Tribunal, to hear appeals under Section 101B until the National Appellate Authority is constituted.
Where such an existing authority is notified, the provisions contained in Section 101A(2) to (13), dealing with the National Appellate Authority's constitution and related matters, will not apply to that arrangement. References to the National Appellate Authority in the relevant Chapter will instead be construed as references to the notified authority.
The amendment creates a practical transitional mechanism without requiring the Government to wait for the constitution of a separate National Appellate Authority.
However, inserting Section 101A(1A) does not, by itself, identify or appoint an existing authority to hear these appeals. The Government must exercise the enabling power through the prescribed notification process.
The amendment is therefore important for taxpayers facing conflicting appellate advance rulings, as it provides a statutory route for establishing an interim appellate arrangement.
5. Omission of Section 13(8)(b) Changes the Place of Supply of Intermediary Services
Section 157 of the Finance Act, 2026 has omitted Section 13(8)(b) of the IGST Act, 2017 with effect from 30.03.2026. This amendment brings an important change in the GST treatment of intermediary services provided by Indian suppliers to overseas recipients. Under the earlier provision, the place of supply of intermediary services was treated as the location of the supplier, even where the recipient of the services was located outside India. Consequently, an Indian intermediary providing services to a foreign principal was unable to satisfy the condition under Section 2(6) of the IGST Act requiring the place of supply to be outside India for a service to qualify as an export.
Following the omission of Section 13(8)(b), the place of supply of intermediary services will ordinarily be determined under Section 13(2) of the IGST Act, subject to any other applicable specific provision. Section 13(2) generally provides that the place of supply is the location of the recipient of services. Accordingly, where an Indian intermediary provides services to a recipient located outside India, the place of supply would ordinarily be outside India. This removes an important statutory obstacle that previously prevented many such services from qualifying as exports.
For example, suppose an Indian commission agent arranges sales for a German company and receives commission from that company. Before 30.03.2026, the place of supply of the intermediary service was India under Section 13(8)(b). Following its omission, the place of supply would ordinarily be Germany under Section 13(2), being the location of the recipient. The commission service may therefore qualify as an export of services, provided all the conditions prescribed under Section 2(6) of the IGST Act are satisfied, including the requirements relating to the receipt of consideration and the establishments of the supplier and recipient.
The Definition of Intermediary Remains Unchanged
The omission of Section 13(8)(b) does not change the definition of intermediary under Section 2(13) of the IGST Act. An intermediary continues to mean a broker, agent or any other person who arranges or facilitates a supply of goods, services or securities between two or more persons. However, a person supplying such goods, services or securities on his own account is excluded from this definition. Thus, the distinction between an intermediary and an independent supplier of services remains relevant, even though the place-of-supply treatment of intermediary services has changed.
Commission agents, travel agents and other service providers engaged in arranging or facilitating supplies for overseas recipients may benefit from the amendment, depending upon their contractual arrangements and the actual nature of their activities. The effective date of 30.03.2026 must also be carefully considered, as transactions relating to earlier periods will continue to be examined under the law applicable to those periods. Businesses should therefore review their contracts, invoices, receipt of consideration and export documentation to determine whether their services qualify as exports under the amended provisions.
The Finance Act, 2026 Moves Towards a Simpler and More Business-Friendly GST Regime
The amendments introduced through Sections 153 to 157 of the Finance Act, 2026 reflect an effort to make GST law more practical and business-friendly. The revised provisions relating to post-supply discounts and credit notes provide greater commercial flexibility, while the extension of provisional refunds can help businesses recover their eligible tax credits more quickly. The changes concerning conflicting advance rulings seek to strengthen the appellate mechanism, while the omission of Section 13(8)(b) of the IGST Act offers important benefits to Indian intermediaries providing services to overseas recipients, subject to the prescribed conditions.
The real benefit of these amendments will depend upon their proper implementation and compliance by taxpayers. Since the provisions have come into force on different dates, businesses must carefully examine their applicability to the relevant transactions and periods. Proper documentation, timely issuance of credit notes, correct ITC adjustments and compliance with refund and export requirements will remain essential. Ultimately, these amendments seek to reduce procedural difficulties, improve business liquidity and bring greater clarity to GST compliance.
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