The next phase of GST: Wider credits, faster refunds, and proportionate enforcement

The 57th GST Council Meeting held on 8 October 2026 could well be remembered as a watershed moment in the evolution of India’s GST regime. Against a backdrop of global trade dynamics, geopolitical tensions, inflationary pressures, and growing demands for ease of doing business, GST Council sought to address longstanding industry concerns relating to blocked credits, refund inefficiencies, compliance burdens, and enforcement practices. Collectively, the said recommendations signal a clear policy shift towards a more streamlined, technology enabled, and trust-based GST regime.  

Breaking the ITC Bottleneck 

One of the most impactful recommendations relates to rationalisation of blocked credits under GST where Council proposed to allow ITC on several restricted category of expenses. The proposed extension of ITC eligibility to free samples and relaxation of credit restrictions on inventory written off due to expiry reflect a major shift towards aligning the GST framework with commercial realities.  

This proposal also aligns GST policy more closely with business necessities by removing restriction on goods destroyed or written off due to expiry of shelf life where such destruction is mandated by law. This will benefit businesses dealing with promotional distributions and perishable inventories.  

For GCCs and other service driven businesses, unblocked credit on health and life insurance and outdoor catering is a meaningful advantage where employee-related costs constitute a significant portion of overall expenditure. However, e-invoicing requirements have been proposed to be extended to import of services and RCM supplies may require additional compliance aspects. 

Proposed removal of ITC restriction on telecommunication towers and pipelines laid outside factory premises is a welcome reform for telecom, infrastructure, energy, and allied sectors. By removing longstanding restrictions on high-value capital assets, proposal is expected to reduce embedded tax costs, improve project economics, and reinforce the fundamental GST principle of an uninterrupted flow of credit across the supply chain.  

Unlocking Capital, Simplifying Refunds 

The Council proposed a landmark expansion of refund eligibility by inclusion of “input services” and ‘capital goods’ within refunds under Inverted Duty Structure (IDS) which also brings GST closer to its objective of minimizing tax cascading and promoting a more seamless credit framework.  

For sectors such as pharma, FMCG, textile, footwear, and support sectors that have historically been impacted by IDS, these measures could unlock substantial working capital, reduce financing costs and improve viability of fresh investments and capacity expansion. Also, refunds for capital goods will release capital locked up in capital intensive sectors, although the five-year (60 months) recovery mechanism means the benefit will accrue progressively.  

The proposed simplification of refund application procedures and removal of 1.5-times turnover restriction applicable to exporters further strengthen refund ecosystem.  

The proposal towards a faster, system-based refund processing in a phase manner with introduction of deemed acknowledgement and risk based provisional refunds is expected to provide greater procedural certainty, although automated sanctions would remain subject to verification and risk assessment parameters.   

Strengthening India's Export Competitiveness 

Enabling Indian businesses to avail export benefits for services rendered to overseas customers through their foreign branches, recognising testing, repair, and similar services performed in India on goods owned by foreign clients as exports of services (subject to prescribed conditions). These measures are expected to provide greater certainty for cross-border business models, reduce tax inefficiencies, and further strengthen India’s position as a preferred destination for global service delivery, contract manufacturing, and value-added processing activities. 

Additionally, zero-rating benefits are proposed to be extended to transactions of supplies made to overseas buyers but delivered in SEZs/ FTWZs. These reforms may significantly benefit technology, consulting, engineering, and other service-export sectors operating through complex international business structures.   

Technology-Led Compliance and Registration Reforms 

The Council’s proposals signal a decisive move towards a more digital and automated GST framework. Measures such as enhanced GST portal functionalities, auto-approval of registration amendments (non PPOB), simplified cancellation procedures, and system-driven revocation of registrations are expected to reduce procedural bottlenecks, minimise documentation-related queries, and accelerate registration processing. However, proposed system-based cancellation framework would require taxpayers to ensure time bound compliances and furnishing of bank account details to avoid registration related disruptions. 

The move to simplify registration for small e-commerce sellers operating through ECOs is a welcome step towards enhancing ease of doing business, facilitating interstate growth, and reducing administrative burden associated with multi-state registrations. Further, introduction of statutory provisions for IMS, credit reversal statements, RCM reporting statements, and stronger alignment of ITC claims with GSTR-2B indicates a clear shift towards invoice-level compliance and automated reconciliations. However, businesses may need to strengthen invoice-level reconciliation and return reporting controls ahead of proposed April 2027 implementation. 

Collectively, these reforms are expected to improve consistency, enhance ease of doing business, and deliver a more seamless taxpayer experience. 

A Fresh Approach to Litigation and Enforcement 

Arrest and criminal prosecution have long been among the most stringent enforcement tools under indirect tax laws. The proposed GST reforms signal a shift towards a more balanced and proportionate enforcement framework, focused on distinguishing genuine compliance lapses from deliberate tax evasion. The goal seems to have fewer officers and more system. 

With proposals including introduction of a minimum monetary threshold of INR 10,000 for show cause notices, reduction of penalties in non-fraud cases, decriminalization of certain offences, raising of prosecution threshold to INR 5 crore and withdrawal of GST officers’ arrest powers under Section 69 collectively seek to draw a clearer line between genuine non-compliance, interpretational disputes and deliberate fraud.  

With rationalisation of appellate pre-deposit requirements for penalty only cases, financial burden on taxpayers will be reduced. Also, reforms relating to e-way bill enforcement also seek to reduce routine inspections and detentions by permitting interceptions primarily based on specific intelligence and appropriate authorisation.  

Such proposed reforms show an intent to ensuring that genuine compliance lapses are addressed through proportionate financial consequences rather than excessive penal action.  

The Road Ahead 

The recommendations emerging from this Council Meeting represent a significant evolution in India's indirect tax framework. The emphasis on expanding legitimate credit availability, improving refund efficiency, reducing litigation, automating compliance, and rationalising enforcement reflects a shift towards a more mature and business-friendly GST regime.  

While recommendations await legislative amendments, notifications, and procedural clarifications for implementation, businesses should proactively assess the impact on existing tax positions, refund strategies, compliance processes, technology systems and ongoing disputes. Those who prepare early will be best placed to unlock the liquidity, efficiency and compliance benefits emerging from the next phase of GST reforms.  

At a broader level, the outcomes of this GST Council Meeting go beyond a series of technical amendments. They signal the evolution of GST into a more mature, business aligned and trust driven tax regime, one that seeks to balance revenue considerations with economic growth, ease of doing business and taxpayer certainty. 

(Kakkar is partner, Grant Thornton Bharat LLP; Sharma is director, Grant Thornton Bharat LLP; Munjal is associate director, Grant Thornton Bharat LLP. Views are personal.)