GST Council Meeting: India faces new challenges amid growing oil shock

Having implemented GST 2.0 rate rationalisation through a two-rate structure of 5% and 18%, with a 40% rate for select sin and luxury goods, the GST Council is expected to shift its focus at its 57th meeting from rate-setting to the quality and efficiency of the tax framework. The meeting, originally notified for 12 September, has been rescheduled to 7 October 2026.

Discussions are likely to centre on safeguarding input tax credit (ITC), simplifying registration and streamlining refunds. The items below are reported proposals and industry demands, not decisions. Any Council recommendation will still require legislative amendments or notifications before it takes effect.

Key issues on the GST agenda

1. Corporate guarantee taxation

GST already applies to corporate guarantees between related parties. Rule 28(2) of the CGST Rules values them at 1% of the amount guaranteed or the actual consideration, whichever is higher. Where the recipient is eligible for full ITC, the invoice value is accepted.

Reports suggest that the Council may consider exempting certain intra-group financial guarantees. Where one group entity pays GST and another claims it back as credit, the exercise is revenue-neutral. It adds compliance costs and creates working-capital pressures, which an exemption would remove.

The harder question concerns guarantees involving group entities that deal in exempt or non-GST supplies. Credit is restricted for such entities, so GST becomes a genuine cost. It will be interesting to see what treatment the Government adopts.

2. ITC on employee vehicles and group insurance

Section 17(5) of the CGST Act, 2017, currently blocks ITC on such vehicles and on group health and life insurance, subject to limited exceptions. Industry has long sought relaxation for employee-related expenditure.

Given the growing emphasis on employee welfare, mobility and retention, particularly in workforce-intensive sectors such as IT, ITeS and consulting, allowing these credits would remove a significant cost burden and improve tax neutrality. It would also be consistent with the broader goal of reducing the cascading of taxes.

3. Centralised registrations and assessments

The GST Council may consider two centralisation measures

a) Centralised registration for small multi-State businesses: A single registration for eligible small businesses operating across States could reduce compliance costs for enterprises expanding beyond their home State. It would also remove the need to maintain multiple registrations.

b) Centralised audit and assessment for large multi-State taxpayers: Such businesses often face parallel audits, investigations and assessments in different jurisdictions. This creates significant compliance costs and litigation exposure. A centralised approach could improve consistency, reduce duplicate proceedings and give pan-India businesses greater certainty.

4. Clarity for app-based aggregators and the gig economy

Section 9(5) of the CGST Act has created uncertainty for app-based passenger transport services because of divergent advance rulings on the tax liability of e-commerce operators.

The GST Council is expected to clarify whether such operators are covered under Section 9(5) and whether they are required to discharge GST on passenger transportation services or only on the supply of the software platform to drivers.

5. Inverted duty structure

Businesses operating under an inverted duty structure, where the tax on inputs exceeds the tax on outputs, and exporters both accumulate ITC that they cannot fully utilise, although they claim refunds through different routes. Some industry commentary suggests that GST 2.0 rate cuts have added to accumulation in sectors such as FMCG.

Part of the relief already exists. Since 1 October 2025, 90% provisional refunds for low-risk claims, including inverted duty cases, have been sanctioned through system-driven risk assessment.

The remaining issues are structural. Refunds in inverted duty cases are limited to ITC on input goods and exclude input services. The Government may address the issue of excluding input services from refund claims for businesses affected by the inverted duty structure.

6. Technology-driven measures

Beyond specific rate or credit issues, there is a broader push towards administrative modernisation. These measures include:
 

Source: Moneycontrol