GST Council set to unveil next-gen reforms: 17-day refunds, simpler registrations, easier input tax credit

Continuing the rationalisation and simplification of the goods and services tax (GST) regime that began last year, the GST Council, at its meeting on October 8, is expected to approve a fresh set of reforms aimed at streamlining key processes, including registrations, refunds and blocked input tax credit (ITC). The measures are expected to ease compliance for businesses across sectors.

"There is now revenue certainty for states and mature technology with invoice-matching links, all of which has together paved the way for the next set of reforms,” Finance Ministry sources said.

The proposed changes include simpler and faster registrations and return filing, refunds within 17 days, and a review of blocked input tax credit through a new invoice-matching system.

For 61% of taxpayers, GST registration is currently being granted within three working days without intervention by an officer. “For the remaining taxpayers, the process is being streamlined to avoid unnecessary queries and rejections,” the source said.

The return-filing process is also proposed to be streamlined to enable invoice matching and validation of input tax credit at the stage of recording itself. “This would avoid a large number of mismatch notices being issued,” the source explained.

Refunds within 17 days

The Council is also expected to consider a proposal under which refund applications would have to be acknowledged within 10 days, with 90% of the refund released after a risk check. The remaining refund would then be issued within seven days of the acknowledgement.

The move would significantly speed up the process, compared with the nearly 21-45 days currently taken just for acknowledgement.

It is also expected to become easier for businesses that are shutting down to cancel their GST registrations. The requirement for physical verification may be removed where a business has cleared its tax liabilities and filed all returns.

To reduce litigation, the government is planning common standards for notices, hearings and orders, along with a threshold below which notices would not be issued.

A proposal for decriminalisation of certain GST offences is also under consideration, including the removal of the arrest provision.

“Tax disputes will be resolved through civil consequences, namely recovery of the tax, interest for the delay and penalty. This is a considered change in the character of enforcement, and it rests on the maturity of the system rather than on any lowering of guard,” the source explained.

Importantly, in a potential relief for several sectors, including FMCG and exports, the Council is expected to consider proposals to unlock working capital by reviewing the provisions governing blocked tax credit.

The changes are likely to allow ITC on tax paid on certain services and on plant and machinery.

The review could also cover blocked credit relating to outdoor catering; health and life insurance; telecommunication towers; pipelines laid outside factory premises; free samples; goods destroyed on expiry of their shelf life where destruction is mandated by law; vehicles with seating capacity of up to 13 persons, along with their insurance, servicing and upkeep; and the leasing and hiring of vehicles.

While the amendments are expected to be approved at the Council meeting this week, the changes will be introduced gradually, with most likely to take effect from April 2027.

Rate changes are unlikely to be taken up at this meeting. Going forward, such changes are expected to be considered once a year and take effect from April 1, the start of the financial year.

“Discussions have been going on with states on these issues and it is expected that most of them will be passed by the GST Council,” the source said.

The proposals have been prepared by the Law Committee and the Fitment Committee, with states consulted throughout the process. Three National Coordination Meetings have also been held over the last year.