India is preparing for a noteworthy transformation of its goods and services tax (GST) framework, shifting focus from tax rates to enhancing compliance for businesses. The GST Council is set to deliberate on various proposals at its upcoming meeting on Wednesday, aiming to streamline processes related to input tax credit (ITC), simplify registration and returns, accelerate refunds, and mitigate tax-related disputes. Reportedly, among the proposed measures is the removal of arrest powers under the GST law, based on insights from sources familiar with the matter.

The overarching objective is to evolve GST from a complex, process-driven system into one that leverages technology, data, and risk-based analytics to differentiate genuine mistakes from intentional tax evasion. This initiative is perceived as a step forward in the GST 2.0 reforms, which initially focused on rationalising GST rates last year.

Current discussions revolve around improving the way GST operates in practice. A significant concern is the substantial amount of ITC that businesses have been unable to access, which adversely affects their cash flow and investment capacity. The GST Council may evaluate proposals allowing businesses to receive tax refunds for certain capital and input expenses in monthly divisions over five years.

Extending Input Tax Credit Accessibility

The proposals aim to broaden the categories of expenses eligible for ITC claims. Potential inclusions are health and life insurance for employees, outdoor catering, telecommunications infrastructure, certain free samples, and goods that need to be discarded after expiration. Credit for vehicles accommodating up to 13 people, along with their insurance and maintenance, could also be permitted. Furthermore, leasing of vehicles might be included within the credit framework.

Particular sectors such as telecommunications, petrochemicals, refining, fertiliser production, gas distribution, and infrastructure might benefit from ITC on telecom towers and pipelines, which would alleviate high capital expenses. The issue of accumulating ITC due to inverted duty structures is also under review, with several goods currently positioned in the 5 per cent GST category facing higher tax on inputs than on the final product.

Experts suggest that resolving this situation could unfreeze significant cash resources for businesses, thereby enhancing their spending capabilities on expansion and capital projects. The GST Council is also contemplating adjustments to ITC regulations regarding suppliers who fail to meet tax obligations, aiming to allow genuine buyers to maintain their credits even if a supplier defaults.

Reforms for IT and Export Sectors

The forthcoming reforms may also benefit specific sectors, notably IT and IT-enabled services. Proposed changes could consider transactions with overseas branches as exports, thus making them eligible for ITC. Similarly, goods sold to foreign clients that are delivered to special economic zones in India may qualify as exports if payment is transacted in foreign currency. Aligning GST regulations closely with the Reserve Bank of India’s export payment guidelines is another area being contemplated.

The timing of these proposed changes coincides with robust GST revenue collections. In September 2026, gross collections surpassed the Rs 2 lakh crore threshold, amounting to Rs 2,03,521 crore, a 14.7 per cent increase year-on-year. Net GST revenue also saw a favourable rise of 18.1 per cent, reaching Rs 1,76,520 crore. However, concerns have arisen regarding a 13.5 per cent decline in domestic refunds during the same month, indicating the necessity for closer monitoring to ensure businesses retain adequate liquidity.

Proposed modifications aim to streamline GST registration, enhancing the user experience for taxpayers. The Council is exploring the introduction of automated three-day registration processes for low-risk applicants, supported by expanded biometric Aadhaar authentication. These measures are intended to combat identity fraud while simplifying the registration procedure.

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