New Delhi: Union Minister for Finance and Corporate Affairs Nirmala Sitharaman during the 57th meeting of the Goods and Services Tax (GST) Council,
Center-Center-ChennaiIndustry and tax experts on Thursday welcomed the GST Council’s recommendations to simplify processes and address long-pending concerns of businesses, including widening input tax credit (ITC) provisions, expanding the definition of exports and easing refund and registration processes.
IT industry body Nasscom welcomed the recommendations, particularly those relating to service exports, ITC, refunds and compliance. It said the recommendations on notices, prosecution and arrest powers signal a more proportionate approach to tax enforcement.
For the IT and IT-enabled services industry, Nasscom said the proposed treatment of services supplied through overseas branches as exports addresses a longstanding concern. Under the existing provisions, services supplied by an Indian office to its overseas branch can fail to qualify as exports because both are treated as establishments of the same person. The proposed change, subject to other export conditions being met, should reduce tax uncertainty, litigation and working capital costs, it said.
The Council has proposed including input services in the calculation of refunds under the inverted duty structure from November 1, 2026, and allowing credit on plant and machinery from April 1, 2027. Abhishek Jain, Partner and National Head – Indirect Tax, KPMG in India, said the move would help fulfil the objective of the recent rate rationalisation, which benefited consumers but left several businesses with accumulated credits.
“Major sectors including FMCG, pharma and food will now be able to monetise this credit and free up working capital. It will be interesting to see what the committee decides on ITC being denied to buyers when a vendor in the supply chain passes on fake credit or fails to pay tax,” he said.
Under the inverted duty structure, where GST on inputs is higher than the rate on the final product, businesses can accumulate credits. Under the existing framework, refunds were largely restricted to ITC attributable to inputs, leaving credits relating to services locked up.
Sohrab Bararia, Partner, Grant Thornton Bharat, described the inclusion of input services in refund calculations as a “significant and long-awaited relief” for Indian manufacturers.
“The proposal has the potential to unlock significant stranded credits and improve liquidity across several manufacturing sectors. That said, it will be interesting to see how the transition provisions and refund computation mechanism are ultimately framed,” he said.
The Council’s decision to reduce the provisional refund timeline from seven days to three days, along with automated refunds of excess cash balances and faster acknowledgement of refund applications, has also been welcomed by industry.
The proposed removal of arrest powers from GST officers was another major reform to draw support. Sudipta Bhattacharjee, Partner, Khaitan & Co, said the arrest provision had been a source of concern over the alleged misuse of enforcement powers.
“This is probably the most welcome news from today’s meeting as this power has been the source of ‘tax terrorism’ under GST with several instances of misuse. Arrests have rarely ended in conviction and almost always ended in bail,” he said. He said requiring court approval for arrest and raising the prosecution threshold to Rs 5 crore would bring greater proportionality to GST enforcement.
Nasscom said it had engaged with the government on several of these issues through consultations and detailed submissions over the years, and looked forward to engaging on implementation and the treatment of pending disputes concerning earlier periods.