Summary: The 57th GST Council meeting has recommended a set of structural reforms aimed at addressing long-standing pain points in the GST framework that have constrained business operations. The recommendations collectively seek to unlock working capital by broadening the scope of creditable expenditure and expanding refund entitlements, reduce compliance friction in interstate commerce and cross-border service arrangements, and recalibrate the enforcement framework to ensure proportionality. While these measures represent a meaningful policy shift toward the original objectives of GST, their commercial impact will ultimately depend on the clarity of the legislative amendments that follow and the effectiveness of their administrative implementation.
The 57th meeting of the Goods and Services Tax (“GST”) Council, held on October 8, 2026, marks a shift from rate rationalisation to addressing structural issues in the GST framework. Following the previous year’s rate rationalisation, the Council has focused on issues that directly affect businesses: blocked input tax credit (“ITC”), accumulated refunds, cross-border service transactions and long-pending GST disputes.
For businesses, the efficacy of the GST regime lies not merely in the tax rate applicable to a transaction, but also in the ability to recover ITC and tax refunds on time, freedom from undue interference during business conduct, availability of adequate working capital for business operations and application of tax laws with greater certainty. In this blogpost, we have selected five important updates from the Council’s recommendations. These recommendations are likely to have material implications for almost all industries, subject to these changes being introduced through appropriate legislative amendments and their effective regulatory implementation.
Link to Wider ITC eligibility: Reducing embedded tax costs Wider ITC eligibility: Reducing embedded tax costs
The Council has recommended amendments to Section 17(5) of the Central GST Act, 2017 (“CGST Act”), to remove ITC restrictions on specified expenditure, including outdoor catering, employee health and life insurance, telecommunication towers, pipelines laid outside factory premises, free samples and goods destroyed or written off on expiry of shelf life where destruction is required by law.
These changes could reduce tax leakage across several industries. For consumer-facing businesses, ITC on free samples could lower the cost of promotional campaigns and product launches. Businesses dealing in packaged foods, beverages and personal care products may also claim credit for expired inventory that must be destroyed as per law. Infrastructure-intensive businesses could see reduced tax costs on eligible expenditure.
The proposed changes to employee insurance and outdoor catering could similarly reduce the effective cost of implementing employee-benefit programmes.
Link to Refunds: A significant working-capital opportunity Refunds: A significant working-capital opportunity
The Council has recommended expanding ITC refunds for zero-rated supplies and inverted duty structures. For inverted duty structure cases, refunds for eligible input services would apply to credit availed on or after November 1, 2026. For capital goods, refunds would be available in both zero-rated supply and inverted duty structure cases, provided the ITC on such capital goods was claimed on or after April 1, 2027. These refunds would be spread over a period of 60 months.
For certain businesses, tax credit gets accumulated because input tax exceeds output tax or because expenditure is associated with export activity. These proposals address this longstanding concern. Manufacturers with substantial expenditure on freight, warehousing, engineering and other input services could benefit from the proposed expansion. Exporters and businesses investing in production lines, packaging facilities and distribution infrastructure may also see improvements in liquidity.
The Council has separately recommended faster, system-based refund processing, including automatic provisional sanction of 90% of eligible claims relating to zero-rated supplies and inverted duty structures, based on risk assessment. The time for acknowledging a refund application is proposed to be cut from 15 to 10 days. If the authorities fail to issue either an acknowledgement or a deficiency memo within this period, the application will be treated as acknowledged automatically.
The commercial benefit is twofold, i.e.: a) a wider pool of potentially refundable credit and b) faster access to eligible refunds.
Link to Export of services: Greater certainty for cross-border arrangements Export of services: Greater certainty for cross-border arrangements
The proposed amendments to the Integrated GST Act, 2017 (“IGST Act”), could benefit Indian service providers operating internationally. Accordingly, if the recommendation goes through, the supplier and recipient may be establishments of a distinct person for the supply to qualify as export of services. This could facilitate export-related benefits for services supplied to overseas branches or through them, subject to the satisfaction of the remaining statutory conditions.
The Council has also recommended changing the place-of-supply rule for specified services where goods are physically made available by the recipient to the service provider. The default rule under Section 13(2), generally linking the place of supply to the recipient’s location, would apply instead. This could benefit Indian businesses undertaking testing, repair, certification, research and processing of goods belonging to foreign customers, even if the goods remain in India.
Businesses should review overseas branch arrangements, service agreements and processing contracts to identify transactions that may qualify for improved export treatment. The final statutory language and applicable conditions will determine the extent of the benefit.
Link to E-commerce and supply chains: Facilitating interstate expansion E-commerce and supply chains: Facilitating interstate expansion
The Council has recommended a simplified GST registration mechanism for eligible small sellers supplying goods through electronic commerce operators. Qualifying sellers could use an e-commerce operator’s warehouse in another State as their principal place of business for the relevant registration, subject to prescribed conditions, including a INR 2,50,000/ month limit on ITC passed on to registered persons.
The proposal could help regional brands and smaller manufacturers expand interstate sales without establishing a physical place of business in every destination state.
In another significant improvement, the proposed restrictions on interception of goods in transit would deny transit states the power to intercept goods merely passing through their jurisdiction, subject to specified exceptions. This is expected to be a gamechanger as traders would be able to freely transport their goods from one state to another without having to worry about the consignment facing any delays and paperwork due to halting in any of the transit states.
These measures could reduce distribution costs and transport delays. Businesses must nevertheless continue to comply with e-way bills and other documentation requirements.
Link to Prosecution and arrest: A more proportionate enforcement framework Prosecution and arrest: A more proportionate enforcement framework
The Council has recommended removing arrest powers under Section 69 of the CGST Act, raising the prosecution threshold from existing INR 10 million to INR 50 million, and reducing the maximum general penalty from INR 25,000 to INR 10,000.
An INR 10,000 threshold for issuing show cause notices has also been recommended, along with a reduced penalty of 5% in specified non-fraud cases where tax and interest are paid within 30 or 60 days after the adjudication order.
These proposals could reduce the disproportionate consequences of certain defaults and improve the economics of dispute resolution. The Council has also recommended common standards for demand notices and adjudication orders, including guidance on invoking fraud or suppression allegations and adherence to natural justice.
However, the proposed relief is not universal. The reduced penalty would be subject to statutory conditions, while removal of arrest powers would not eliminate tax recovery, interest or other applicable penalties.
Link to Conclusion Conclusion
GST was introduced to replace multiple indirect taxes with a single, unified tax system. Its core goals were straightforward, i.e., remove tax-on-tax cascading, allow seamless flow of input tax credit across the supply chain, reduce compliance costs, ensure one nation one tax and make it easier to do business in India. In practice, however, several gaps in the law have worked against these goals. Section 17(5) of the CGST Act blocked ITC on a range of genuine business expenses, effectively bringing back the cascading tax and related complications that GST was introduced to eliminate. Due to GST rate mismatches in the rates of GST for input and output goods and services, businesses facing inverted duty structures or engaged in zero-rated supplies especially found it extremely difficult to adjust ITC that was legitimately due to them and in certain cases, obtain refunds of accumulated ITC, thereby locking up a significant amount of working capital. This led to dissatisfaction and frustration among taxpayers and discouraged investment. On the enforcement side, broad arrest powers and low prosecution thresholds created a climate of uncertainty that sat uneasily with the promise of a business-friendly tax regime.
The 57th GST Council’s recommendations are aimed at closing these gaps. By widening ITC eligibility, expanding refund entitlements, updating place-of-supply rules for cross-border services and raising enforcement thresholds, the Council has taken meaningful steps to bring the GST framework closer to its original promise. The focus must now shift to translating these recommendations into clear legislative amendments and effective administrative action that deliver real commercial benefits and thereby, reinforce business certainty across sectors.