GST Council approves broad set of process reforms, resolves credit blockages
October 8, 2026
The GST Council approved reforms to simplify compliance, speed refunds, expand input tax credits, and reduce litigation, boosting ease of doing business and enhancing India's indirect tax system.
The Goods and Services Tax (GST) Council on Thursday approved a raft of process and systems reforms that will help make India’s indirect tax regime more globally aligned, offering simpler compliance, faster flow of genuine tax credits and less scope for litigation. The reforms are expected to align the government’s objectives more closely with business and consumer interests—raising revenue productivity, reducing costs, improving competitiveness for businesses, and potentially lowering prices for consumers.
The key provisions approved by the Centre-state body, the final arbiter of the dual-jurisdiction destination-based consumption tax, include removing the arrest powers of tax officers under GST laws, speeding up registration and cancellation, bolstering system-driven refunds, expanding input tax credit (ITC), simplifying litigation and reducing physical checks on goods in transit. The reforms will ease compliance for small businesses and encourage more of them to join the organised value chain, including as sellers to the thriving e-commerce platforms.
Businesses across the board will benefit from reduced tax costs thanks to a key proposal approved by the council bringing input services and plant and machinery within the refund framework for inverted duty structures and zero-rated export supplies. This could unlock substantial working capital and investment funds.
“Next-generation GST, which commenced last year with a reduction in rate, has really shown a positive impact and a transparent and stable revenue source for all states and the Centre. Now, I expect this process reform equally to be accepted by the states and also by businesses,” Finance Minister Nirmala Sitharaman said after the 57th meeting of the council. She said the reforms would support ease of doing business while providing stable revenues to the Centre and states. On the lines of direct taxes, the Centre will roll out a major structural shift by introducing a faceless assessment framework for Central GST (CGST) assessments, Sitharaman said.
The new set of process reforms will be rolled out from April 1, 2027. No GST rate changes were discussed at the meeting. Instead, the Council decided that rate-related matters, if any, would be considered once a year at a dedicated meeting. The current proposals seek to resolve anomalies and ambiguities that remain after the rate rationalisation undertaken in September 2025.
The Council decided to remove the power of arrest under GST to plug its misuse. It also raised the prosecution threshold from Rs 1 crore to Rs 5 crore and reduced the general penalty from Rs 25,000 to Rs 10,000 for violations. The changes are being enabled by invoice-level matching and data analytics, which allow authorities to identify suspicious transactions and fake ITC closer to where they originate, it said. “’The Council has recommended complete withdrawal of arrest powers under GST by omission of section 69 of CGST Act, 2017,” according to an official statement.
The Council decided that the deadline for acknowledgement of a refund claim will be reduced from 15 days to 10 days. If neither an acknowledgement nor a deficiency memo is issued within 10 days, the claim will be treated as acknowledged. The system, rather than an officer, will sanction 90% of eligible refund claims based on risk assessment, with orders issued within three working days of acknowledgement, compared with seven days currently. Excess balances in the cash ledger will also be refunded automatically.
Refund applications will increasingly draw information directly from government systems, with shipping details sourced from customs and payment particulars from the banking system. This is expected to reduce paperwork and speed up refunds, particularly for exporters.
GST registration will also become more automated. Currently, 61% of registrations are already processed through the system without officer intervention, while 39% are referred to officers. Low-risk applications are processed within three working days. Routine changes such as trade names, directors, partners or additional business addresses will now be accepted automatically.
Return filing will be streamlined to do away with about 95,000 system-generated notices issued annually over differences between returns. Recovery against these notices is only around 0.08% of the amount involved, indicating that most differences are related to data-entry errors rather than tax evasion.
The Council has also expanded ITC for ordinary business spending by making it available on health and life insurance for employees, telecommunication towers, pipelines outside factories, free samples, and stock written off because of expiry where the law requires the goods to be destroyed.
The reforms also address double taxation in certain services within the same line of business, which will effectively carry tax once rather than twice, with ITC allowed. This will benefit sectors involving hotel accommodation up to Rs 7,500 per night booked through agents, restaurants and catering, and passenger transport, where the earlier 5% rate came without credit.
Refund eligibility will also be expanded to input services and plant and machinery under the inverted duty structure and for exporters. Tax paid on plant and machinery will be refunded over 60 months, allowing businesses to recover taxes embedded in investment and improve working capital, particularly in sectors such as pharma and FMCG.
Business closure will become simpler and increasingly automated, beginning with smaller taxpayers. The final return will form part of the closure application, while registrations suspended or cancelled for missing returns or bank details can be restored once the taxpayer fulfils the requirements.
An optional compliance scheme has also been approved in principle for consumer-facing taxpayers with turnover of up to Rs 5 crore. Eligible taxpayers will be able to file returns annually while paying tax quarterly. Nearly 1.66 million taxpayers could benefit from the scheme, with the detailed framework to be finalised at the next Council meeting.
The Council also decided that vehicles in transit may be stopped only on the basis of specific intelligence and with prior authorisation. Physical inspection will generally be restricted to the source and destination states, preventing repeated checks by states through which goods are merely passing. The Council approved that Indian firms serving foreign clients through their own overseas branches will qualify for export benefits. Services such as testing, repair, certification, research and processing carried out in India on goods owned by foreign clients will also qualify as exports, even when the goods remain in India. Export payment recognition will follow Reserve Bank of India rules, creating a single standard and helping exporters recover taxes on inputs more quickly.
The Council deferred a final decision on two issues, including safeguards for genuine buyers who hold valid invoices, have received the goods and have fully paid their suppliers. A Committee of Officers will examine the issue and submit its recommendations within three months, after which it will be placed before the next GST Council meeting. A Committee will also examine the issue of motor vehicle purchases by companies and the eligibility to claim input tax credit where the supplier has not paid the tax.
[The Financial Express]
