GST 2.0: Six Major Reforms Set To Shape Tax Regime’s Next Decade

New Delhi: The 57th meeting of the GST Council may signal a pivotal moment for India's indirect tax system, with a shift expected from rate rationalization to tackling litigation, enhancing input tax credit safeguards, addressing legacy credit concerns, and leveraging technology to establish a more reliable compliance framework, according to a report released on Saturday.

Manoj Mishra, a Partner and Tax Controversy Management Leader at Grant Thornton Bharat, highlighted the meeting's importance as the Goods and Services Tax enters its tenth year. He emphasized that the GST Council's subsequent reforms should prioritize building trust, certainty, and simplicity into the system, rather than expanding the tax base.

One crucial area in need of attention is the reduction of GST litigation, particularly the ongoing dispute stemming from the Supreme Court's decision in the Gameskraft case, which has affected the online gaming industry with estimated claims of nearly Rs 2.5 lakh crore. The Council might explore Section 11A of the CGST Act as a means to clarify tax positions arising from commonly followed trade practices.

Another significant reform area is input tax credit, where the Council could explore granting a legislative safe harbor to recipients possessing valid tax invoices, confirming receipt of goods or services, making payments through banking channels, and avoiding collusion. This protection could help diminish disputes and bolster the seamless credit system integral to GST.

The transition from compensation cess on specified goods, scheduled to end on February 1, 2026, is also expected to require a clear resolution. Businesses are awaiting clarity on credits accumulated under the previous regime. The meeting might also revisit the inclusion of petroleum products under the GST purview, as petrol, diesel, aviation turbine fuel, and natural gas currently fall outside the GST framework, leading to multiple layers of taxation and embedded costs in manufacturing, logistics, and transportation.

The rapidly evolving digital economy poses additional challenges, with businesses seeking greater clarity on the application of Section 9(5) of the CGST Act to app-based passenger transportation. The GST Council could consider establishing a functional test based on the actual level of control and involvement of a platform, as well as determine if such operators must obtain GST registration in every state where drivers operate or if a centralized compliance mechanism could suffice.