GST Council 57th Meeting: Wider ITC, Faster Refunds and a New Compliance Framework

India’s Goods and Services Tax framework may be entering another important phase of reform. The focus is shifting from rate rationalisation towards input tax credit (ITC), faster refunds, simpler compliance and export facilitation.

At its 57th meeting, held on 8 October 2026, the GST Council recommended a series of measures to reduce working-capital blockages and improve ease of doing business. They are also meant to make India a more competitive base for manufacturing and global service delivery. The recommendations cover:

• refunds under the inverted duty structure;
• capital-goods ITC and blocked credits;
• export of services;
• registration and return reconciliation;
• penalties, prosecution and the movement of goods;
• a set of rate clarifications.

1. Refunds of accumulated ITC: a working-capital opportunity

Input-service ITC under the inverted duty structure

Under the current framework, Section 54(3) of the CGST Act, 2017 and Rule 89(5) of the CGST Rules govern refunds of accumulated ITC under the inverted duty structure. The existing refund formula generally limits the relevant Net ITC calculation to eligible inputs.

The Council has recommended amending clause (ii) of the proviso to Section 54(3), and the CGST Rules, so that refunds under the inverted duty structure extend to accumulated ITC on input services. The proposed benefit applies to input-service ITC availed on or after 1 November 2026.

If implemented as recommended, this could benefit manufacturers and other businesses whose input-service GST costs keep adding to accumulated credit.

Capital-goods ITC

The Council has also recommended extending refunds to accumulated capital-goods ITC, for both zero-rated supplies and the inverted duty structure. The refund would be spread over 60 months, for capital-goods ITC availed on or after 1 April 2027.

This is likely to matter most to capital-intensive manufacturers, exporters, engineering companies and businesses investing in production infrastructure. Keep separate records of input, input-service and capital-goods ITC now. That way, eligibility can be worked out accurately once the final rules are notified.

2. Wider ITC eligibility under Section 17(5)

Section 17(5) of the CGST Act lists categories of expenditure on which input tax credit is blocked, subject to specified exceptions. The Council has recommended removing the restriction on, among others:

• outdoor catering;
• health and life insurance;
• telecommunication towers;
• pipelines laid outside factory premises;
• free samples;
• goods destroyed or written off on expiry of shelf life, where the law requires it.

The last item is narrower than it may first appear. The release refers to goods destroyed or written off on expiry of shelf life as required by law. It does not cover every destroyed or written-off good.

Separately, the Council recommended allowing limited ITC “in the same line of business” for three supplies:

• restaurant and outdoor catering services;
• hotel accommodation valued up to ₹7,500 per unit per day;
• gym and fitness services.

Today, that treatment is available for passenger transport, tour operator and motor-vehicle renting services.

Do not start claiming these credits on the strength of the Council announcement. Verify the amended provisions, their effective dates and any conditions first.

3. Faster, more automated refunds

The Council recommended amending Section 54 and the CGST Rules for system-based processing of three kinds of refund claim:

• excess balance in the electronic cash ledger;
• zero-rated supplies;
• the inverted duty structure.

The changes would come in two phases.

Phase 1

• Full refund of excess electronic cash ledger balance, sanctioned automatically.
• The time limit for an acknowledgement or deficiency memo cut from 15 days to 10. If the officer issues neither within 10 days, the application is treated as acknowledged.
• Automatic provisional sanction of 90% of zero-rated and inverted-duty claims, based on the system’s risk evaluation.

Phase 2

• Automated acknowledgement of applications once the system has verified them.
• For zero-rated supplies, automated sanction of the full claim after adjusting pending dues, again risk-based.

The Council also recommended:

• a system-readable FORM GST RFD-01, with no scanned uploads for zero-rated and inverted-duty claims;
• removing the Rule 89(4)(C) cap that limits the turnover of zero-rated supply of goods to 1.5 times the value of like goods supplied domestically;
• an explanation to Section 54(14): the ₹1,000 threshold applies to the total refund across CGST, SGST/UTGST and IGST together;
• a standalone provision in Section 115 for the interest rate on refund of appeal pre-deposits, with a clarifying circular.

The real impact will depend on the final amendments, how the system is built and how the risk filters work. Exporters and regular refund claimants should tighten their reconciliation, documentation and refund tracking now.

4. Export of services: proposed IGST Act changes

Services supplied to or through foreign branches

The Council recommended omitting Section 2(6)(v) of the IGST Act. That sub-clause is the condition that supplier and recipient must not be establishments of a distinct person for a supply to qualify as an export of services. The release says this will facilitate refunds for Indian service providers supplying services to or through their foreign offices or branches.

If you run an international delivery model, review your branch structure, inter-office arrangements, cost allocations, contracts and refund eligibility.

Testing, repair and other services on goods

The Council recommended omitting Section 13(3)(a) of the IGST Act. That clause is the place-of-supply rule for services on goods that the recipient makes physically available to the supplier. These services would then fall under the default rule in Section 13(2), the location of the recipient, subject to the final statutory wording.

This may help Indian businesses that provide testing, inspection, repair or technical services to foreign customers. Export status will still depend on the remaining statutory conditions.

Delivery into an SEZ or FTWZ for overseas buyers

The Council recommended an explanation to Section 16(1) of the IGST Act. It would cover goods sold to an overseas buyer but delivered to that buyer in an SEZ or Free Trade Warehousing Zone. Such a supply would be deemed a supply to the SEZ or FTWZ where payment is received in convertible foreign exchange, or in Indian rupees where RBI permits.

The Council also recommended a circular clarifying when payment in foreign exchange or Indian rupees is permissible for export of goods and services.

5. Registration and returns

Registration

• A comprehensive circular and FAQs on the documents needed for registration, plus drop-down document selection in FORM GST REG-01.
• Amendments to registration particulars accepted automatically under Rule 19, except changes to the principal place of business. For taxpayers registered on the automatic route under Rule 14A, even those changes would be accepted automatically.
• Automatic acceptance of cancellation applications in FORM GST REG-16 once all pending returns are filed and dues paid. This would apply first to specified cases and then to all applications.
• System-based suo-moto cancellation and revocation for non-filing of returns or non-furnishing of bank details, through amendments to Rules 21, 21A and 22 and a new Rule 23A.
• A new Rule 14B for small sellers supplying goods through e-commerce operators. In a State or UT where they have no physical presence, they could declare the operator’s warehouse as their principal place of business. Registration would be automatic, subject to conditions, where they intend to pass on ITC of not more than ₹2.5 lakh a month.

Returns and reconciliation

• Better matching between GSTR-1/1A/IFF and GSTR-3B, with a correction mechanism for liability (new Rule 61(1A)) and for ITC (new Rule 61(1B)).
• An “Electronic Statement of tax paid on Reverse charge basis and input tax credit claimed” (new Rule 86D).
• An “Electronic Credit Reversal and Reclaim Statement” (new Rule 86C).
• Invoice Management System rules in a new Rule 60(6A), including how long a credit note can be kept pending.
• FORM GST DRC-03 to capture the underlying invoice.
• E-invoicing extended to two kinds of supply received by taxpayers with aggregate annual turnover of ₹5 crore and above: reverse-charge domestic purchases from unregistered persons, and imports of services.

The Council recommended that the alternate return-correction mechanism come into force from the April 2027 return. The revised mechanism is also to be put out for time-bound public consultation, so the detail may change. Until then, keep complying with the current return-filing and reconciliation requirements.

6. Penalties, prosecution and enforcement

Notices, penalties and appeals

• Maximum general penalty under Section 125 cut from ₹25,000 to ₹10,000.
• No show cause notice under Sections 73, 74 or 74A where the tax involved is below ₹10,000 (CGST + SGST + IGST + Cess). The threshold is also to apply to pending notices and appeals below that amount.
• A reduced penalty of 5% in non-fraud cases where tax and interest are paid within 30 days (Section 73) or 60 days (Section 74A) of the adjudication order.
• Removal of the ₹10,000 minimum penalty in non-fraud cases.
• Where the full tax, interest and penalty are voluntarily paid within the specified time, the penalty amount to be deemed a “charge” (the release’s word; its effect will depend on the amendment text).
• For orders involving only a penalty and no tax demand, appeal pre-deposit capped at ₹40 crore (₹20 crore CGST and ₹20 crore SGST/UTGST), before both the Appellate Authority and the Tribunal.
• A circular setting standards for demand notices, adjudication and appeal orders. It would cover invoking fraud or suppression only on the merits of each case, and personal hearings.

Arrest and prosecution

• Arrest powers withdrawn entirely by omitting Section 69.
• Prosecution threshold raised from ₹1 crore to ₹5 crore.
• Section 132(1) narrowed. Clause (c) would cover only fraudulent availment of ITC without receipt of goods or services, or without an invoice. Clause (i) would be omitted, and punishments rationalised.

Goods in transit (Sections 68, 129 and 130)

• A conveyance may be intercepted only on specific intelligence, with authorisation from an officer not below Joint Commissioner.
• No interception in transit States. Action would be possible only where the supplier or recipient is located or registered in the intercepting State. The exception is where there is no e-way bill, or no document showing origin or destination.
• Confiscation under Section 130 would not apply to goods or conveyances in transit.

Credit blocking under Rule 86A

Taxpayers would be able to object to the blocking of their electronic credit ledger and have a personal hearing before the officer decides.

7. Other recommendations to note

• Late fee waiver for a delayed Section 39(1) return, for taxpayers with turnover up to ₹5 crore in the preceding financial year, where the return is filed by the end of the month in which it was due.
• Optional ARQP scheme (Annual Return Quarterly Payment), approved in principle. It is for taxpayers with turnover up to ₹5 crore who make only B2C supplies. So far there is a concept note, not a scheme.
• Intellectual property: any transfer of title in IPR, temporary or permanent, to be treated uniformly as a supply of services.
• Clarifying circulars on:
  • the ISD mechanism;
  • ITC for banks and NBFCs opting for Section 17(4);
  • pre-deposits;
  • ITC on demonstration vehicles;
  • omission of Rule 96(10) with effect from 23 October 2017, in line with the Supreme Court’s decision.
• Alignment and clarity amendments:
  • Sections 16, 37 and 39 aligned with the Section 16(4) time limit for availing ITC;
  • clarity on e-commerce operator liability under Section 9(5);
  • GST Appellate Tribunal provisions aligned with the Tribunals Reforms Act, 2026.

Rate changes and clarifications

The release also sets out rate recommendations. These usually take effect through rate notifications, sometimes quickly, so check each one against the notification before applying it.

• Plastic waste, e-waste, tyre waste and used cooking oil supplied by unregistered to registered persons brought under reverse charge. TDS at 2% on B2B supplies of the same waste and scrap.
• An option of 5% with restricted ITC for passenger transport and vehicle rental with operator, using electric vehicles where charging is included in the consideration.
• Delivery services through e-commerce operators brought under Section 9(5), at 5% without ITC.
• Second-hand vehicle dealers under the margin scheme may take ITC on inputs and services other than the vehicles themselves.
• Classification clarifications on sublimation paper, toys and seaweed-based bio-stimulants.
• Exemptions for:
  • helicopter seat-sharing to and from the North-East, Sikkim and Bagdogra;
  • warehousing of sowing seeds;
  • coffee curing;
  • Seamen’s Provident Fund Organisation services;
  • toll-collection rights granted under the TOT model.

8. What businesses should do now

Use the announcement to review your GST positions rather than waiting for the implementation dates.

Manufacturers

• Quantify accumulated ITC under the inverted duty structure.
• Separate input, input-service and capital-goods credit.
• Review potentially blocked credits and the supporting documentation.

Exporters

• Review zero-rated refund claims, export documentation and any claims held back by the Rule 89(4)(C) turnover cap.
• Examine foreign-branch arrangements and place-of-supply issues.
• Keep asset-level ITC records for capital expenditure.

IT and consulting businesses

• Review cross-border service arrangements, including transactions with foreign branches and overseas customers.
• Reassess testing, repair and technical services involving goods.

All GST-registered businesses

• Strengthen GSTR-1, GSTR-3B and GSTR-2B reconciliation.
• Review reverse-charge accounting and ITC reversal and reclaim controls.
• List pending notices or appeals below ₹10,000, and any multi-year notices.
• Watch for the CBIC notifications and portal updates before changing anything.

How RDA can help

RDA Tax Advisory Services helps businesses assess GST exposure, strengthen compliance and find tax-efficiency opportunities. Our GST reform support includes:

• refund eligibility assessments;
• inverted-duty and accumulated-ITC reviews;
• Section 17(5) blocked-credit reviews;
• export and place-of-supply reviews;
• return reconciliation and compliance health checks;
• impact assessments for GST disputes.

See our GST services, GST litigation support and the complete GST guide.

Official source

Ministry of Finance, Press Information Bureau: Recommendations of the 57th Meeting of the GST Council (8 October 2026). See also the GST Council website.

This article is for general information. It summarises recommendations announced by the GST Council and does not imply that any of them has been enacted or has come into effect. Verify the applicable legislation, notifications, rules and effective dates before taking a tax position. It is not a case-specific legal or tax opinion.