57th GST Council Meeting - Simplifying compliance and unlocking working capital

The 57th Goods and Services Tax Council (“GST Council”) meeting, held in New Delhi on October 8, 2026, placed procedural reform at the centre of the GST agenda. Following the rate rationalisation recommendations of the 56th meeting, the Council has now recommended measures to widen input tax credit (“ITC”) eligibility and facilitate exports together with changes across registration, returns, refunds and adjudication. 

For businesses, the key proposals concern greater automation, reduced officer intervention, more effective return reconciliation and faster release of working capital. This alert summarises the key recommendations made at the meeting and our views on their practical implications. These recommendations will take effect only upon the issuance of the relevant legislative amendments, notifications or circulars.

2.1 Rationalisation of blocked credits

• ITC to be allowed on health and life insurance services. 
• ITC to be allowed on telecommunication towers. 
• ITC to be allowed on pipelines laid outside factory premises, free samples and goods destroyed or written off upon expiry where required by law. 
• Limited ITC in the same line of business to be allowed for: a) Restaurant /outdoor catering services b) Hotel accommodation valued up to INR 7,500 per unit per day c) Gym and fitness services

2.2 Protection of ITC for Bona Fide Buyers

During the press conference following the meeting, the Finance Minister stated that a Committee of Officers would examine the issue of ITC denial under Section 16(2)(c) of the CGST Act, 2017, particularly in cases where a bona fide buyer has received the goods or services, holds a valid invoice and has paid the supplier in full. The Committee is expected to submit its report within three months, following which the GST Council will take a decision on the issue.

2.3 Services supplied to overseas establishments

The GST Council has recommended omission of Section 2(6)(v) of the Integrated Goods and Services Tax Act, 2017 (“IGST Act”), which excludes services between establishments of a distinct person from the definition of export of services. This is intended to facilitate refunds for Indian service providers supplying services to or through their foreign offices or branches. Other applicable export conditions would continue to require examination.

2.4 Services involving goods physically made available

Section 13(3)(a) of the IGST Act would be omitted so that the place of supply for services involving goods physically made available by the recipient would be determined under the default rule in Section 13(2), i.e, recipient’s location. This could facilitate export benefits for Indian service providers serving foreign recipients, subject to fulfilling the remaining export requirements.

2.5 Deliveries to overseas buyers in SEZs and FTWZs

An explanation is proposed to be inserted to Section 16(1) of the IGST Act which would deem that goods supplied to an overseas buyer, but delivered to that buyer in a Special Economic Zone (“SEZ”) or Free Trade Warehousing Zone (“FTWZ”), to be supplies made to an SEZ/FTWZ, where consideration is received in convertible foreign exchange or Indian rupees wherever permitted by the Reserve Bank of India. This seeks to give certainty on zero-rating for such deliveries for warehousing or further processing.

3.1 Arrest and prosecution

The GST Council has recommended complete withdrawal of GST arrest powers and an increase in the prosecution threshold from INR 1 crore to INR 5 crore, along with changes giving effect to narrowing the scope of offence and moving towards a progressive and trust-based tax regime. 

3.2 Notices and lower penalties

• Comprehensive guidelines to be issued to address the quality and timely issuance of demand notices and adjudication/appeal orders, invocation of fraud, wilful misstatement or suppression only on the merits of each case, and adherence to natural justice, including personal hearings.
• Amendments to Sections 73, 74 and 74A to prescribe a minimum tax threshold of INR 10,000, aggregating CGST, SGST, IGST and cess, for issuance of show cause notices. Pending notices and appeals below this amount would be decided as though the threshold applied when the notice was issued.
• Other proposed relief includes the following: 

3.3 Appeals and blocked electronic credit

• For penalty only orders, the pre-deposit for appeals before the Appellate Authority or Appellate Tribunal would be capped at INR 40 crore, comprising INR 20 crore under CGST and INR 20 crore under SGST/UTGST. 
• An amendment has been proposed in Rule 86A, which deals with the blocking of ITC to enable a taxpayer to file an objection and to avail the opportunity of a personal hearing.
• The GST Council has also proposed the introduction of a validation clause to validate the notices issued for multiple financial years. The proposed amendment seeks to address instances where such notices have been held invalid by various courts solely on the ground that they covered more than one financial year.

4.1 Automation process

Phase 1: The GST Council has recommended amendments to Section 54 of the CGST Act and the CGST Rules for system-based refund processing. In the first phase, the entire refund of excess balance in the electronic cash ledger would be sanctioned automatically, without officer intervention. The period for issuing an acknowledgement or deficiency memo would reduce from 15 days to 10 days. For zero-rated supplies and inverted duty structure (“IDS”) claims, 90% of the amount claimed would be sanctioned provisionally and automatically, based on system identification and evaluation of risk.

Phase 2: The system would acknowledge refund applications after verification, without officer intervention. For acknowledged claims relating to zero-rated supplies, the full refund would be sanctioned automatically, after adjusting pending dues and on the basis of system risk evaluation. 

4.2 Simpler applications and fewer computational restrictions

FORM GST RFD-01 would capture information in a system-readable format, dispensing with the requirement of scanned documents for zero-rated supply and IDS claims. The restriction under Rule 89(4)(C), which caps turnover of zero-rated goods at 1.5 times the value of like goods supplied domestically for refund computation, would be removed.

4.3 Refund of ITC on input services and capital goods

The GST Council has recommended widening refund eligibility to include accumulated ITC on capital goods for zero-rated supplies, and on input services and capital goods for IDS claims. For IDS refunds, input-service ITC would be eligible where availed on or after November 1, 2026.

For both zero-rated supply and IDS refunds, capital-goods ITC availed on or after April 1, 2027 would be refundable over 60 months. The proposal therefore contemplates a spread of the refund over that period, rather than an immediate refund of the entire capital-goods credit. The detailed computation and implementation mechanism remain to be prescribed.

The GST Council has recommended the following key changes to reduce officer intervention and streamline compliances:

5.1 Simplified registration and amendments

Inclusion of standardised documentation requirements, FAQs and improvements to FORM GST REG-01 is proposed. Changes to registration particulars would be accepted automatically, except changes to the Principal Place of Business (“PPoB”). For taxpayers registered under Rule 14A, PPoB changes would also be accepted automatically.

5.2 Automated cancellation and revocation

Taxpayer-initiated cancellation would be automated in phases, subject to filing pending returns and paying dues, where the monthly ITC passed on has never exceeded INR 2.5 lakh. Above this threshold, timely filing of GSTR-10 will also be required. Amendments to Rules 21, 21A and 22 and new rule 23A will enable system-based cancellation for return or bank-detail defaults and revocation after compliance.

5.3 Easier registration for small e-commerce sellers

Proposed Rule 14B would permit eligible suppliers of goods through Electronic Commerce Operators (“ECOs”) to obtain automatic registration in States/Union Territories where they have no physical presence by declaring the ECO’s warehouse as their PPoB. The facility would cover suppliers intending to pass on ITC not exceeding INR 2.5 lakh per month, excluding stock transfers between distinct persons, subject to prescribed conditions.

5.4 Improved return reconciliation and correction

An alternate mechanism, proposed from the April 2027 return and subject to public consultation, would facilitate correction of liabilities and ITC in GSTR-3B and alignment with GSTR-1/1A/IFF and GSTR-2B. Separately, it was recommended that FORM GST DRC-03 would also capture invoice-level payment details.

5.5 Relief for small taxpayers

Late fee on delayed returns under Section 39(1) would be waived for taxpayers with preceding-year turnover up to INR 5 crore where the return is filed by the end of its due month. An optional Annual Return Quarterly Payment scheme has also been approved in principle for taxpayers with preceding-year aggregate turnover up to INR 5 crore making exclusively B2C supplies.

5.6 Wider e-invoicing and alignment of filing provisions

E-invoicing would extend to domestic procurements from unregistered persons liable to RCM and import of services for taxpayers with aggregate annual turnover of INR 5 crore and above. Sections 16, 37 and 39 would also be amended to align statement and return-filing provisions with the ITC time limit under Section 16(4).

• The GST Council recommended restricting interception of vehicles carrying goods to cases based on specific intelligence and authorized by an officer of at least the rank of Joint Commissioner. Inspection and further action for detention or seizure may be undertaken only where the supplier or recipient is located or registered in the State of interception, with no interception in transit States. However, where no e-way bill has been generated or the conveyance carries no document indicating the origin or destination of the goods, inspection, detention or seizure may be undertaken irrespective of jurisdiction. The GST Council also recommended removing the power to confiscate goods or conveyances while in transit.
• The GST Council recommended clarifying that the transfer of intellectual property rights (IPR), whether temporary or permanent, will be treated as a supply of services.
• It also recommended amending Section 9(5) of the CGST Act, 2017, to clarify the liability of e-commerce operators (ECOs) to pay tax on notified services, irrespective of their business models. It also recommended bringing delivery services, other than courier and postal, supplied through ECOs under Section 9(5), at a GST rate of 5% without ITC, subject to the prescribed conditions.
• Supplies of plastic, electrical and electronic waste, tyre scrap and used cooking oil by unregistered persons to registered persons will attract RCM. B2B supplies of specified waste and scrap by registered persons will also be subject to 2 percent TDS.

The recommendations address recurring operational difficulties under GST: registration queries, return mismatches, delays in refunds and procedural uncertainty in enforcement. Their value for businesses will depend on whether the legislative changes and portal functionality work together to reduce manual intervention while allowing taxpayers to explain genuine differences in their records.

The refund proposals could provide meaningful working-capital relief, particularly through inclusion of input services in IDS refunds and capital-goods ITC in eligible refund claims. The recommended cut-off dates and 60-month spread for capital-goods refunds will, however, be important in assessing the timing and extent of that benefit.

Businesses should prepare to review their registration records, RCM and ITC reconciliations, refund data and invoicing systems. On disputes, the proposed notice-validation clause should be assessed alongside the measures intended to reduce penalties and strengthen procedural safeguards.

Please note that all recommendations would be given effect through relevant circulars/notifications/law amendments which alone shall have the force of law.