ITC Refund on Input Services: Inverted Duty Structure Update

Auto-drafted from official sources and under review by CA Rajeev Ranjan. Verify against the original notification before you act.

What Has Changed

Until now, taxpayers operating under an inverted duty structure could claim refunds on accumulated Input Tax Credit (ITC), but only on goods (inputs), not on input services. That restriction is being lifted.

Effective 1 November 2026, accumulated ITC availed on input services will also be eligible for refund under the inverted duty structure provisions. Only ITC availed on or after this date qualifies, so the change is prospective, not retrospective.

Who Is Affected

This update matters if you:

• Supply goods or services where the GST rate on your output is lower than the rate on your inputs (the classic inverted duty situation)
• Are currently stuck with ITC building up on input services with no way to claim a refund
• Operate in sectors such as manufacturing, textiles, or any other industry where inverted duty structures are common

If your business doesn't face an inverted duty structure, this change doesn't directly impact you.

How to Claim the Refund

The refund will be claimed through Annexure-B, the dedicated form for this purpose. An offline utility for Annexure-B has been made available from 18 May 2026, giving taxpayers time to familiarise themselves with the tool before the refund window opens in November.

Key steps to take:

• Download the Annexure-B offline utility now and understand its structure before November 2026
• Set up a tracking mechanism for ITC availed on input services from 1 November 2026 onwards, you'll need clean, date-wise records to support your claim
• Segregate input service ITC from goods ITC in your books, since only the input service ITC availed from the effective date is eligible
• File your refund claim using the Annexure-B utility once you have accumulated eligible ITC; refer to the official notification for filing timelines and any caps that may apply

Why This Matters

For businesses in inverted duty sectors, ITC on input services has historically been a dead cost, it accumulated in the ledger but couldn't be monetised. This change significantly improves working capital for affected taxpayers. The earlier you build the right tracking systems, the smoother your first claim will be.

What to Do Right Now

1. Check whether your supply chain falls under an inverted duty structure
2. Download the Annexure-B offline utility (available from 18 May 2026)
3. Brief your accounts team to tag and track input service ITC separately from 1 November 2026
4. Review the official press release and any subsequent circulars for specific conditions, formats, or limits not covered here

Source: Official notification