Overview: Proposed Goods and Services Tax (GST) input tax credit (ITC) and refund reforms could unlock an estimated ₹50,000-60,000 crore annually for industry at full maturity. The proposals seek to widen refunds for accumulated ITC on input services and capital goods, alongside wider ITC eligibility for selected business expenses. Pharmaceuticals, textiles, footwear, fertilisers, renewable energy and electric vehicles could be among the major beneficiaries. The actual benefit will depend on final eligibility, refund methodology and implementation rules.
The 57th GST Council meeting, being held on 8 October 2026, is considering a broad package of GST reforms focused on Input Tax Credit, refunds and ease of compliance. According to a Financial Express report, three experts estimate the wider credit and refund framework could eventually unlock ₹50,000-60,000 crore annually. Another estimate places currently stuck ITC at around ₹50,000 crore, but this should not be treated as an amount that will immediately flow to businesses.
The proposed reforms are expected to be implemented in phases. Capital-goods refunds are likely to begin from 1st April 2027, with the benefit potentially spread over five years. Input-service refunds could be introduced earlier if approved. The treatment of ITC already accumulated under the existing framework will also depend on the final transition rules.
What the Proposed GST ITC Reforms Could Change
The proposals under consideration include:
- eligible plant and machinery in inverted-duty situations, in addition to eligible inputs.
- A possible extension of ITC to outdoor catering, group health and life insurance, telecommunication towers and specified motor vehicles.
- ITC on vehicles with seating capacity of up to 13 persons, along with related insurance, servicing and upkeep, subject to the final conditions.
- Possible ITC on eligible vehicle leasing and hiring.
- An improved invoice-matching mechanism linking supplier reporting with buyer ITC claims, with the objective of keeping the tax consequence of a supplier default with the defaulting supplier.
- Faster refund processing, including a proposal for refund applications to be acknowledged within 10 days, with deemed acknowledgement if the prescribed period expires without action.
These are proposals being considered by the Council and should not be treated as changes already available to taxpayers.
Which Businesses Could Benefit?
The biggest impact could be felt in industries where the GST paid on inputs and services is higher than the GST charged on the finished product, resulting in accumulation of unutilised ITC. Pharmaceuticals, textiles, footwear, fertilisers, renewable energy and electric vehicles have been identified as sectors likely to see a material benefit.
The current inverted-duty refund outgo is estimated at around ₹30,000 crore annually, largely relating to eligible ITC on inputs. The proposed ITC on employee group health and life insurance alone has been estimated to release more than ₹5,000 crore for corporates. Around ₹2,500 crore of compensation cess credit is also reportedly stranded with automobile dealers, although that issue relates to the earlier GST 2.0 transition and should not be treated as part of the ₹50,000-60,000 crore annual estimate.
For businesses, the distinction between ITC eligibility and refund eligibility remains critical. A wider ITC provision does not automatically mean that every accumulated credit can be converted into cash.
What Businesses Should Do Now
Businesses should:
- Review accumulated ITC relating to inputs, input services and capital goods.
- Reconcile purchase invoices with GSTR-2B and supplier records.
- Keep GST returns, books of account and supporting documents consistent.
- Identify supplier-wise mismatches and retain documentation supporting ITC claims.
- Review existing accumulated credit separately from credits that may arise after the proposed reforms take effect.
- Avoid treating currently blocked ITC as refundable until the final rules and notifications are issued.
A proper review now can also help businesses identify the records they may need if wider refund eligibility is introduced.
Setindiabiz Support
Setindiabiz supports businesses with GST registration, GST return filing, ITC reconciliation, GST refund claims and GST documentation. Our professionals support businesses in reviewing ITC eligibility, reconciling purchase invoices with GST records, identifying supplier-wise mismatches and maintaining documentation required for ITC claims and refund applications.
Businesses can engage Setindiabiz experts for GSTR-2B reconciliation, GST record reviews, refund documentation and ongoing GST compliance. A structured review of invoices, returns and supporting records helps businesses maintain accurate credit positions and remain prepared as GST ITC and refund rules evolve.
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FAQs
The proposals may widen refunds of accumulated ITC relating to input services and eligible capital goods in inverted-duty situations. The Council is also considering wider ITC eligibility for selected expenses, including group health and life insurance, outdoor catering, specified vehicles and vehicle leasing or hiring.
Businesses currently carry certain accumulated ITC that cannot be immediately utilised or refunded. Wider refund eligibility could release part of this blocked credit and improve cash flow. Capital-goods refunds may be spread over five years, so the benefit would not necessarily arrive as an immediate lump-sum refund.
No. It is an expert estimate of the potential annual cash-flow impact at full maturity. The actual benefit will depend on the final eligibility criteria, refund methodology, grandfathering provisions and implementation.
No. The proposed reforms do not mean that all accumulated ITC will automatically become refundable. Refund entitlement will depend on the final rules, eligible categories, applicable conditions, methodology and treatment of existing credits.
