GST Rates Unchanged at Oct 8 Council Meeting; Major Reforms on Agenda

While the immediate focus is not on rate hikes or cuts, the Council is considering a proposal to make future GST rate changes more predictable. Under this new framework, rate revisions could be considered once a year, taking effect from April 1. This move aims to provide businesses with a stable environment to plan their finances.

The push for stability comes on the back of strong performance from the current two-rate GST structure. Recent data shows a significant rise in taxable supplies, which grew by 25.8 per cent year-on-year between October and July. During this period, the gross tax liability increased by 13.6 per cent, while the effective tax rate on domestic taxable supplies actually declined from 14.55 per cent to 13.13 per cent.

Major Overhaul in Input Tax Credit and Refunds

One of the most anticipated discussions involves the rules governing Input Tax Credit (ITC). The Council is considering a protective measure for buyers: if a buyer holds a valid invoice, has received the goods, and has paid the supplier in full (including tax), they would be allowed to retain their ITC even if the supplier defaults further up the supply chain.

Other proposed changes to the credit system include:

• Including certain business expenses that are currently outside the credit chain.
• Preventing double taxation when a service is resold within the same line of business.

The Council is also looking to revolutionize the refund process. Currently, claims take an average of 25 days to process. The new framework proposes an acknowledgement within 10 days, with 90 per cent of eligible refunds being released automatically after a risk check, using data drawn directly from customs and banking systems. The scope of refund eligibility may also expand to include tax paid on services and plant and machinery.

Simplifying Registration and Export Rules

Automation is at the heart of the proposed reforms. While 61 per cent of registrations are already approved within three working days without human intervention, the Council aims to automate around 66 per cent of amendment applications. Additionally, the process for cancelling registration upon business closure is expected to be simplified, and suspended registrations could be restored automatically once lapses are corrected.

For exporters, the reforms aim to eliminate technical hurdles. Key proposals include:

• Ensuring that billing a foreign client through an overseas branch does not result in the loss of export status.
• Qualifying testing, repair, certification, and research services as exports even if the goods remain in India.
• Aligning payment-realisation requirements with Reserve Bank of India (RBI) norms.

Empowering Small E-commerce Sellers and Reforming Enforcement

The digital economy is also set for a boost. To support the small businesses that make up nearly 90 per cent of e-commerce sellers, the proposals suggest allowing them to complete verification in their home state and then sell across the country. Furthermore, tax treatment for online transactions will be linked to the underlying service rather than the contractual structure used by the platform.

Finally, a significant shift in GST enforcement is on the table. The Council aims to move several offences away from criminal provisions. Instead of legal prosecution, cases involving delays, inadvertent errors, or payment shortfalls would be handled through tax recovery, interest, and proportionate penalties. Officials have described this new approach as enforcement that "works through money rather than through custody."

The changes approved by the Council are expected to be implemented in phases through 2027.