India’s GST Council considers next phase reforms including ITC and compliance simplification

In this column, Finance Minister Nirmala Sitharaman outlines the vision behind Next-Gen GST and explains how recent reforms are aimed at reducing tax burdens, simplifying compliance and supporting economic growth. She highlights rising GST collections, stronger business participation, growing consumer demand and the role of states in shaping the reform process.

Finance Minister Nirmala Sitharaman has said the next phase of Goods and Services Tax (GST) process reforms will soon come before the GST Council, with the government looking to simplify compliance following the rate changes implemented in September last year.Writing in a column in The Economic Times, Sitharaman said the reforms have two linked objectives: rationalising tax rates and making compliance easier. The measures are aimed at providing relief to households while offering greater certainty to businesses.India-US Trade Deal Talks Reach ‘Plateau’, Further Concessions Difficult: Nirmala Sitharaman GST collections, taxable supplies riseSitharaman said that reported taxable supplies increased 25.8% between October 2025 and July 2026 compared with the corresponding year-ago period. The growth was recorded across all 11 sector groups and major states.Gross GST collections stood at ₹12.46 lakh crore during April-September 2026, an increase of 11.6% year-on-year. Collections recorded double-digit annual growth every month from June to September, with receipts during the four-month period rising nearly 15%.Net GST collections after refunds increased 10.4% during the first half of the financial year.Business-to-consumer sales rose 26.7% in the post-reform comparison. Sitharaman said lower taxes reflected in prices could leave households with more money for spending or savings, while stronger purchasing power could support demand for businesses. GST registrations, timely filings increaseGST registrations across central and state jurisdictions reached around 17.1 million by the end of August, nearly 15% higher than a year earlier.For the April-July 2026 tax periods, GSTR-3B returns filed by the due dates increased 12.6%.Sitharaman said the improvement also placed greater responsibility on tax authorities to provide reliable services, clear guidance and timely resolution of problems.Around ₹1.80 lakh crore was refunded during April-September. She said greater predictability in refunds could help businesses plan purchases and production.The Finance Minister added that simpler GST administration could help small and medium enterprises expand beyond local markets. She also credited states with helping shape the reforms and implement GST Council decisions.

New Delhi: India is eyeing a broad overhaul of the goods and services tax (GST) regime that could free up thousands of crores of accumulated input tax credit, ease compliance and raise thresholds for prosecution, with emphasis on decriminalisation.A host of such proposals, which include rationalisation of provisions governing e-way bill requirements and removing powers to arrest under the GST law, will be taken up by the GST Council at its meeting on Wednesday. The proposals span all touchpoints for a taxpayer - from registration, returns and refunds to input tax credit and litigation - marking a shift from procedure-heavy compliance towards automated, data-driven and risk-based administration, people familiar with the matter told ET.134679716"Safeguards imposed in the early years of GST can be relaxed without weakening enforcement because of the availability of data and advancement of systems," one of them said.ALSO READ | Next-gen GST: Taking India's reform journey forwardThese process reforms would complete the GST 2.0 makeover.Ease of Doing BusinessThe revamp kicked off with last September's sweeping rate rationalisation, resetting the way the GST system interacts with businesses.A key proposal on the table is in connection with easing input tax credit (ITC), which could provide an indirect stimulus to the industry by freeing up capital.The council will consider allowing tax paid on plant and machinery and input services to be refunded in monthly instalments over five years, as businesses could not recover this under ITC, people cited earlier said.The proposals also seek to widen credit for a range of business inputs that had previously remained blocked, including health and life insurance for employees, outdoor catering, telecommunications towers, pipelines outside factories, certain free samples and expired goods requiring destruction, vehicles seating up to 13 persons along with their insurance and maintenance, and leasing or hiring of vehicles.Also read: Ease of biz relief in store for small ecomm sellers"Unlocking blocked input tax credit under Section 17(5) can lower costs across industry and make Indian goods and services more competitive globally," said Bipin Sapra, partner at EY. "Also, refunding accumulated GST credit on inverted duty structures can turn locked-up working capital into growth capital, giving industry a capex stimulus comparable to a PLI scheme without creating a new subsidy."The proposed credit on telecommunication towers and pipelines would address significant capital expenditure incurred by the telecom, refining, petrochemical, fertiliser, gas distribution and infrastructure sectors, people aware of the matter said.A large number of goods in the 5% bracket, including food, pharma, textiles and electric vehicles, face inverted duty structure, leading to ITC accumulation running into thousands of crores. Releasing this stuck capital would prompt many industries to pump it back as capex, experts said.Another key proposal is a change in the treatment of ITC when a supplier further up the chain defaults, leading to genuine buyers losing tax credit - an issue that has emerged as one of the largest causes of litigation under the GST system.Under the proposed approach, a genuine buyer would be allowed to retain credit where the transaction is bona fide, while recovery would be directed at the supplier further up the chain who failed to pay the tax. This is possible because the system can now identify mismatched or fraudulent credit closer to its source as seller and buyer data is linked invoice by invoice, said the people cited.Information already available with customs, the Reserve Bank of India's export monitoring system and other government systems will be drawn directly into the refund process instead of requiring taxpayers to upload documents for officers to manually examine, they noted.Sectoral ReliefIn what could offer significant relief to the IT/ITeS sectors, the council will consider allowing treatment of supplies to overseas branch offices as exports, making such transactions eligible for ITC.Goods sold to foreign buyers but delivered in a special economic zone here could also be treated as exports if the payment is in foreign currency, people cited above said.GST norms are also proposed to be aligned with RBI's rules regarding receipt of payment for exports.The proposed reforms also seek to reduce low-value compliance and litigation. No show-cause notice may be issued where the amount involved is below ₹10,000, with the proposed change extending to pending cases, the sources said. Around 95,000 notices a year arise from differences between returns, with recovery against such notices amounting to only about 0.08% of the sums involved, they noted.Small businesses with turnover of up to ₹5 crore and supplies exclusively to unregistered customers may be allowed to file returns annually with quarterly tax payments. Registration is being proposed to be eased with applicants that qualify for the automated route to be registered within three working days, a process that already covers 61% of registrations. Changes to trade name, directors or partners, and additional business addresses are also likely to move to automatic processing.

India's ambition to become a Viksit Bharat requires an economy in which enterprises of every size can grow, wherever they begin. Over the past 12 years, our government has worked to create those conditions. GST's introduction in 2017 established a common national framework for indirect taxation. Next-gen GST carries that effort forward, drawing on nine years of implementation and the experience of taxpayers and states.Under Prime Minister Narendra Modi's vision, next-gen GST was conceived with two connected purposes: to reduce and rationalise rates, and to make compliance easier. The rate changes took effect on September 22, 2025. The next phase of process reforms will come before the GST Council shortly. Together, these efforts seek to give households relief, businesses greater certainty and taxpayers a system in which they can fulfil their obligations without avoidable difficulty.Also Read: GST 2.0 may scrap arrest powers, raise prosecution barStates have been partners throughout. They brought their priorities and experience to the council, helped shape the decisions and undertook their implementation. I thank them for that commitment.The results provide grounds for confidence. Between October 2025 and July 2026, the value of reported taxable supplies grew 25.8% over the corresponding period a year earlier. A lighter rate structure has been accompanied by a substantial expansion in reported economic activity. This is an encouraging foundation for a reform intended to support both enterprise and public finances.Also Read: India within reach of 8% growth, says Ex-RBI guvThat resilience is visible in the latest revenue figures. Gross GST collections reached ₹12.46 lakh crore during April-September 2026, up 11.6% from a year earlier. Every month from June through September recorded double-digit annual growth; together, collections for these four months accelerated by nearly 15%. Net collections, after refunds, grew 10.4% over the half-year. Taxpayer relief has coexisted with growth in the resources available for development.The breadth of the expansion matters as much as its scale. Reported taxable supplies grew across all 11 sector groups and all major states. Growth across sectors and regions creates opportunities for more businesses to participate in expanding markets, and for more communities to benefit from the demand, investment and employment that follow.Reported sales to consumers (B2C) rose 26.7% in the post-reform comparison. When tax relief is reflected in prices, families have more room to meet other needs or save. Consumer relief and enterprise growth are closely connected: the purchasing power of households sustains demand for the goods and services that businesses provide. The benefits can extend from the household to the retailer, the supplier and the producer.For small and medium enterprises, a national market is valuable when it opens a practical route to customers beyond their immediate surroundings. Businesses in tier-2 and tier-3 towns should be able to build those relationships while continuing to invest and employ people locally. Enterprises expanding into these towns, in turn, can create opportunities for local suppliers and distributors. GST's common framework supports these connections; simpler administration must make them easier to sustain.Participation in that framework is substantial. GST registrations across central and state jurisdictions were about 17.1 million at the end of August, up nearly 15% from a year earlier. For the April-July 2026 tax periods, GSTR-3B returns filed by their due dates were 12.6% higher. These improvements place a corresponding responsibility on the administration: regular compliance must be supported by reliable service, clear guidance and timely resolution of difficulties.The functioning of input tax credit is another important part of this experience. The post-reform figures show that the share of tax liability discharged through credits rose, while accumulated credit declined relative to taxable supplies.This is encouraging for businesses that depend on the effective use of eligible credit. For a smaller firm, working capital determines how readily it can purchase inputs, fulfil an order and take on the next one. Refunds are equally relevant. About ₹1.80 lakh crore was refunded during April-September. Returning amounts due to businesses is part of a well-functioning tax system. Greater predictability in this process would help enterprises plan purchases and production with more confidence.(The writer is the union minister of finance and corporate affairs.)