GST Council widens input tax credit scope, eases refund rules for firms | Economy & Policy News

The Goods and Services Tax (GST) Council has approved a series of changes to input tax credit (ITC) rules, widening the range of business expenses eligible for credit and allowing refunds of accumulated credit on input services and plant and machinery.

 

At its 57th meeting on Thursday, the Council decided that businesses will be able to claim ITC on health and life insurance taken for employees. Credit will also be available on telecommunication towers and pipelines laid outside a factory, both of which are significant capital items for the sectors concerned.

 

ITC will also be allowed on free samples and on stock written off after expiry of its shelf life where the law requires the goods to be destroyed.

  

What changes for businesses buying and reselling services?

 

The Council has also sought to remove instances where a service bought and resold in the same line of business effectively faces tax twice.

 

A press note cited hotel accommodation costing up to ₹7,500 a night when booked through an agent, restaurant and catering services, and passenger transport as common instances. Credit had previously been denied on these services because they attract a 5 per cent tax rate without ITC. The credit chain will now be allowed to continue.

 

Refunds widened to input services

 

Another significant change relates to businesses that accumulate unused ITC because their inputs are taxed at a higher rate than their output, commonly referred to as an inverted rate structure.

 

At present, refunds under this mechanism are confined to tax paid on goods. The Council has decided to extend the refund to tax paid on input services as well. The change will apply to credit availed on or after November 1, 2026.

 

The exclusion of tax paid on plant and machinery from refunds will also be removed for both exporters and businesses operating under an inverted rate structure.

 

Refunds on plant and machinery will be calculated at one-sixtieth of the credit for each month, in line with the working life of the asset. The provision will apply to credit availed on or after April 1, 2027.

 

The press note said this would allow a manufacturer setting up a new production line to recover the tax paid on the investment instead of leaving it accumulated in the credit pool. It identified pharmaceuticals and fast-moving consumer goods as sectors that could see improved working capital management following the change.

 

Relief for genuine buyers under study

 

The Council will also constitute a Committee of Officers to examine whether a genuine buyer can be protected when the buyer possesses a valid invoice, has received the goods and has paid the supplier in full.

 

The committee has been asked to complete its study within three months, following which an agenda on the matter will be placed before the next GST Council meeting.