- The 57th meeting of the Goods and Services Tax (GST) Council will be held in New Delhi on 12 September, with changes to input tax credit (ITC) rules and refund provisions likely to be among the issues under consideration.
- The Council may also examine refunds of accumulated ITC arising from an inverted duty structure, where businesses pay a higher GST rate on inputs than on finished goods.
- The GST Council Secretariat has scheduled a meeting of tax officers for 11 September, a day before the main Council meeting.
- One of the key matters likely to come up is Section 17(5) of the Central Goods and Services Tax (CGST) Act, which specifies goods and services for which businesses cannot normally claim ITC.
- The Council is expected to prioritize easing compliance burdens for businesses, with a focus on rate cuts for mobile phones.
- The Council's previous session focused heavily on tax rate rationalization, while this upcoming meeting is expected to address operational and legal gaps that have emerged.
- Businesses have been seeking changes to some of the ITC restrictions, arguing that blocked credits can become part of their costs even when expenditure is connected with business activities.
- The inverted duty structure has resulted in accumulation of credits for manufacturers, textile and pharmaceutical companies, and FMCG firms.
- The final agenda and decisions will be known after the Council considers the proposals at its 12 September meeting.
The GST Council's upcoming meeting on September 12 in New Delhi is poised to address significant tax reforms.1
Key issues include potential changes to input tax credit (ITC) rules, which currently restrict businesses from claiming credits on certain expenditures.
Section 17(5) of the CGST Act outlines these restrictions, affecting areas like motor vehicles and health services.4
Businesses argue that these blocked credits inflate their costs, impacting cash flow.
Any relaxation could ease working capital pressures.
The Council will also tackle the inverted duty structure, where GST on inputs exceeds that on finished goods, leading to accumulated credits.28
Proposals for refunds of unutilised ITC from inter-state transfers are also on the table.
“GST 2.0 simplified slabs, but it also deepened the inverted tax problem,” noted Brijesh Kothary, Partner at Khaitan & Co.
Additionally, a reduction in GST on mobile phones from 18% is under consideration amid declining demand.
“Should genuine GST paid on services remain locked as working capital?” questioned Ramjee, highlighting the need for legislative changes to allow refunds of input-service credits.
Ranjeet Mahtani estimated that around ₹6,000 crore in accumulated cess remains unaddressed.
The Council's decisions could significantly impact compliance costs and cash flows for businesses across sectors.
“The meeting follows a 374-day hiatus, with experts like Brijesh Kothary noting that GST 2.0 deepened the inverted tax problem. Ranjeet Mahtani estimates accumulated cess at around ₹6,000 crore, and the Council may also address refunds for input services and protect buyers when suppliers default.”
Swarajya
