# Automating GST Inverted Duty Refund Calculations: Rule 89(5) in Code

If you are building a GST compliance module for an ERP, accounting SaaS, or tax automation tool, the inverted duty structure (IDS) refund calculation is a formula you will encounter. It is prescribed in Rule 89(5) of the CGST Rules and amended by Notification 14/2022-Central Tax dated 5 July 2022.

Here is the formula, translated from legal language to something you can actually implement:

The Rule 89(5) Formula
Maximum Refund = ( (Turnover_of_Inverted_Rated_Supply * Net_ITC) / Adjusted_Total_Turnover ) - Tax_Payable_on_Inverted_Rated_Supply

Where:

Turnover_of_Inverted_Rated_Supply = value of supplies where input rate > output rate
Net_ITC = ITC availed on inputs (goods only, NOT input services, NOT capital goods)
Adjusted_Total_Turnover = total turnover minus zero-rated supply turnover, exempt supply turnover, and the value of inverted supplies already counted
Tax_Payable_on_Inverted_Rated_Supply = the output tax liability on inverted supplies
Implementation Notes

1. Exclude input services
   The Supreme Court ruling in VKC Footsteps India v. Union of India (2021) confirmed that input services are NOT included in Net_ITC for this formula. Your data model must track ITC by supply type (inputs/goods vs input services vs capital goods).

2. Get Adjusted_Total_Turnover right
   This is where most implementations fail. It must exclude:

Zero-rated supplies (exports, SEZ supplies)
Exempt supplies
Turnover from supplies covered under Section 10 (composition scheme)
Value of supplies already used as the numerator
Some implementations double-count by including inverted supplies in both the numerator and the denominator.

1. Tax period granularity
   The refund is claimed period-by-period (monthly or quarterly). Your calculation engine needs to run this formula for each GSTIN for each tax period separately.

2. The 90% provisional refund (October 2025)
   Since GST Instruction 6/2025 (effective 1 October 2025), the system now grants 90% provisional refunds to low-risk taxpayers before full adjudication. If you are integrating with GSTN APIs, watch for the risk-score flags that determine provisional eligibility.

Industries to Flag in Your Product
The IDS problem is concentrated in: pharma, footwear, textiles, EVs, corrugated boxes, and certain plastic products. If your SaaS serves these sectors, auto-flag potential IDS situations when input GST rate > output GST rate.

For excluded goods (edible oils, Chapter 15; coal, Chapter 27), suppress the refund calculation and show a clear "not eligible" status.

Filing Flow
The human steps after your calculation: Form RFD-01 on the GST portal, ARN generation, provisional refund order, scrutiny and final order. Your tool can pre-populate the RFD-01 fields from the computation.

For the full compliance context including legal framework and common rejection reasons, reference the GST inverted duty structure refund formula guide.

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