GST Council Approves Major Process Reforms and Input Tax Credit Refunds

New Tax Rules

The Goods and Services Tax Council has announced key process reforms aimed at boosting the service sector and helping companies unlock working capital. Finance Minister Nirmala Sitharaman announced that amendments will be made to Section 54(3) of the Central Goods and Services Tax Act to allow refunds of accumulated input tax credit on capital goods for zero-rated supplies, and for input services and capital goods under an inverted duty structure. Refunds on capital goods like plant and machinery will be spread over 60 months. The changes for input services will start on November 1, 2026, while capital goods changes will take effect from April next year. Abhishek Jain from KPMG in India noted that sectors such as FMCG, pharma, and food will now be able to use this credit and free up working capital.

Service Exports and E-commerce

The Council also changed tax rules for the export of services by aligning tax treatment with on-ground practices. Indian firms serving foreign clients through an overseas branch will now get export benefits, helping analytics firms, design studios, and engineering consultancies. Additionally, the GST rate for delivery services provided by unregistered riders through e-commerce platforms has been fixed at 5 percent. The Council also clarified that goods supplied to overseas buyers with delivery made in a Special Economic Zone or Free Trade Warehousing Zone will qualify as zero-rated supplies if paid for in convertible foreign currency or permitted rupees.

Context

The GST system in India handles a large volume of transactions and is managed by a central council representing both the Union and the states. Tax reforms of this nature aim to ease the burden on businesses and simplify rules for cross-border trade and services.