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Finance Minister Nirmala Sitharaman said on Wednesday that the Goods and Services Tax (GST) Council’s October 7 meeting would take up process reforms under “GST 2.0”, focusing on issues related to e-invoicing and input tax credit (ITC) rules.
“Not yet at 3.0. In 2 itself we are doing it,” Sitharaman said in response to a question on whether measures such as extending e-invoicing to all taxpayers, including composition scheme dealers, and rationalising ITC provisions could form part of “GST 3.0”.
Speaking at an event organised by the International Tax Research and Analysis Foundation (ITRAF) in Bengaluru, Sitharaman said the previous GST Council meeting had focused on rate rationalisation, while process reforms had been deferred to the next meeting.
Several issues raised at the conference, she said, would be considered as part of the process-reform agenda. She also invited industry to submit specific representations on anomalies in the GST framework that the government may not have addressed.
Sitharaman also urged tax professionals, industry bodies, and researchers to move beyond seeking lower tax rates, exemptions, and concessions, and contribute more actively to evidence-based tax policy by identifying provisions that may no longer serve the tax system.
“Consultation must mean more than giving everyone an opportunity to place a representation on record. It should be a genuine exercise of evidence, experience, and ideas,” she said.
The finance minister said industry bodies should also be willing to point out provisions that ought to be removed even though they themselves currently benefit from those provisions.
She urged ITRAF, an independent tax research organisation, to make its work more visible and emerge as a leading institution for tax policy research and analysis in India. ITRAF’s stated objective is to undertake research and analysis in international taxation and make recommendations to policymakers.
India, she said, needed institutions that could bring together economists, tax lawyers, chartered accountants, academics, and industry practitioners, and give their work greater standing in the public policy process.
On taxation of the digital economy, Sitharaman cautioned against taking decisions without examining their implications for India, other jurisdictions, and future investment.
She said cloud services, digital products, and consumption of digital services raised difficult questions about where and on whom the tax should be imposed.
“The complexity has to be coolly studied, the implications for India and implications for outside, coolly studied, and above all, the implication that it can have in terms of further investments coming into India, coolly studied as well,” she said.
Sitharaman also recounted India’s experience with the global two-pillar tax negotiations. She said India had withdrawn two taxes on digital companies during the negotiations, partly to build confidence in the emerging global agreement.
“We had hoped that the two-pillar taxation would give us some solution. It is waiting. It has not come to a conclusion either way,” she said.
The finance minister cautioned against viewing the issue simply as a question of whether India was losing tax revenue, saying the taxation of digital businesses was part of a broader global negotiation.
On cryptocurrency, Sitharaman said the issue remained under discussion among stakeholders in India and with other countries. India currently taxes such transactions at source, with the tax being reconciled with the final tax liability, she said.
On the Supreme Court’s ruling in the Tiger Global case and concerns over its implications for investments routed through Mauritius, Sitharaman said a Central Board of Direct Taxes (CBDT) notification issued on March 31 had clarified the government’s position on investments coming from treaty jurisdictions.
She said the order should be “fully executed” and indicated that further clarification could be provided if doubts remained.
The finance minister also stressed that the government’s litigation in the Tiger Global matter was not intended to discourage foreign investment into India, describing it as a case involving the conduct of a particular company.
Sitharaman also said the government was open to an institutional mechanism to provide greater clarity on whether digital transactions should be treated as goods or services under GST and income tax laws.
Asked whether such a mechanism could be created, she said: “Yes, why not?” Sitharaman invited industry to send proposals and suggestions on the issue.
The distinction between goods and services in digital transactions is among the issues that have become more complex as businesses increasingly operate across borders, she said.
On whether India should create a dedicated tax framework for the space sector, Sitharaman said she would favour a lenient approach towards taxation of research and innovation.
“As long as they are doing research, as long as they are searching for innovations… it is ideal to take a lenient position on taxation,” she said.
However, once research is commercialised and scaled up for commercial purposes, tax authorities would have the right to tax the resulting income, she said.
Sitharaman said the government had progressively widened foreign direct investment (FDI) limits since 2014, with most investments now coming through the automatic route, except in areas involving security considerations.
She said global investors were looking to diversify supply chains under the “China plus one” strategy, and that India’s macroeconomic fundamentals remained attractive to investors.
Sitharaman also highlighted the role of GIFT City in channelling offshore capital into India, citing sectors such as maintenance, repair and overhaul (MRO), shipbuilding and ship repair, and fintech.
The finance minister said the country’s digital payment infrastructure had expanded significantly but adoption remained uneven.
She pointed to small and high-street shops that continue to prefer cash payments despite the wider availability of digital payment infrastructure.
The government, she said, could not solve this entirely through incentives, and that greater adoption would require customers, professionals, and businesses to encourage wider participation in the digital economy.
Looking ahead, Sitharaman said the tax policy debate would increasingly have to address issues such as significant economic presence, virtual permanent establishments, taxation of artificial intelligence (AI) and robotics, the gig economy, global mobility, virtual digital assets, global capability centres (GCCs), and the treatment of goods and services in digital transactions.
She said Bengaluru was particularly relevant to these debates because of its concentration of technology companies and GCCs.
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