The GST Council has recommended changes to input tax credit (ITC) restrictions and refund procedures that could improve cash-flow management for eligible businesses. The proposals cover specified business expenses, refunds under the inverted duty structure, export-related benefits and greater automation in processing claims.
The recommendations require the relevant legal changes and notifications before they can be treated as effective.
Which blocked credits could change?
The Council has recommended removing certain restrictions under Section 17(5) of the CGST Act for specified expenses, including outdoor catering, health and life insurance, telecom towers, pipelines outside factory premises, free samples and goods destroyed or written off because of expiry of shelf life where required by law.
The proposal is not a blanket relaxation of blocked-credit rules. Eligibility will depend on the final legal provisions and the nature and use of the expense.
Sajja Praveen Chowdary, Director and CEO – Policybazaar for Business, said the proposed ITC changes for employer-provided health and life insurance could affect the cost of group insurance cover for businesses.
Krishnamoorthy Rao, MD and CEO of Generali Central Insurance, said allowing eligible ITC on employer group health insurance could improve the economics of providing such cover and support wider insurance penetration.
Shareen Gupta, Partner at JSA Advocates and Solicitors, highlighted the importance of the proposed ITC and refund changes, while noting that unresolved issues also remain in the credit framework.
Bipin Sapra, Partner and Indirect Tax Policy Leader at EY India, highlighted the implications of blocked-credit rules and refund access for businesses.
Refunds under the inverted duty structure
The Council has recommended allowing refunds of input-service credit under the inverted duty structure for credit availed on or after November 1, 2026.
Refunds of capital-goods credit for specified zero-rated supplies and inverted duty structure cases are proposed for credit availed on or after April 1, 2027, with the amount spread over 60 months.
The Council has also recommended provisional refunds of 90% of the claimed amount for eligible zero-rated supplies and inverted duty structure claims, subject to system-based risk assessment. The proposed change to the refund acknowledgement and deficiency-memo timeline would reduce the period from 15 days to 10 days; an acknowledgement would be deemed to have been issued if neither document is issued within 10 days.
The official recommendations do not establish a universal three-working-day timeline for payment of refunds. Provisional sanction, acknowledgement of a claim and actual payment are distinct stages.
L Badri Narayanan, Chairman of ASSOCHAM’s National Council on Indirect Taxes and Executive Partner at Lakshmikumaran & Sridharan, highlighted the proposed extension of refund eligibility to input services and capital goods, with different effective dates.
Abhishek Jain, Partner and National Head – Indirect Tax at KPMG in India, highlighted the potential significance of the proposed refund changes for businesses with accumulated credit.
Pratik Jain, Partner at Price Waterhouse & Co LLP, said the proposed expansion of refund eligibility and automated processing could help businesses manage accumulated tax credit and working capital.
Ikesh Nagpal, Lead – Indirect Tax at AKM Global, highlighted the shift towards process simplification and automation in GST compliance and refund processing.
Mahesh Jaising, Partner and Indirect Tax Leader at Deloitte India, highlighted the relevance of ITC changes, including the proposed treatment of specified free samples and goods destroyed or written off after expiry.
What about exporters and buyers whose suppliers default?
The Council has recommended changes to certain export-service conditions, including the treatment of establishments considered distinct persons, recognition of payment in foreign exchange or Indian rupees where permitted, and place-of-supply rules in specified cases. Other recommendations cover certain qualifying supplies to overseas buyers in special economic zones or free-trade warehousing zones.
Saurabh Agarwal, Tax Partner at EY India, highlighted the importance of predictable tax-credit and refund processes for working capital, investment and export activity.
However, the Council release does not announce a final resolution of the issue of bona fide buyers being denied ITC because a supplier defaults. Nor does it announce a general relaxation of ITC restrictions for motor vehicles. Those issues should not be presented as settled Council decisions without separate official confirmation.
For businesses, the key questions will be which credits qualify, the applicable cut-off dates and how risk-based processing works once the proposals are implemented.