GST Council meet starts with focus on ease of doing business, ITC overhaul and decriminalisation on agenda

The 57th GST Council meeting has commenced with a major emphasis on input tax credit (ITC) reforms, which could significantly ease credit restrictions for businesses and address supplier default issues. The council will also evaluate proposals to decriminalize certain offenses under GST, effectively ending arrests as a punitive measure.

A key proposal involves protecting genuine buyers' ITC from being denied solely due to upstream supplier default, provided certain safeguards are in place. This move aims to offer businesses greater certainty when facing credit disputes over suppliers' non-compliance.

The council is also exploring expanding ITC eligibility for several areas currently facing restrictions, such as insurance, exports, and infrastructure. This could include allowing ITC on employee health and life insurance, easing a long-standing dispute for businesses. Credit could also be expanded for eligible passenger vehicles, vehicle leasing, hiring, telecom towers, and external pipelines.

The hospitality and services sectors may see ITC eligibility for same-line resales, including certain hotel, fitness, beauty, and health services. Restrictions on works-contract services and construction of immovable property are expected to persist, with relief focused on specific assets like external pipelines and telecom towers.

The Council is also anticipated to consider substantial changes to the refund mechanism, allowing businesses to receive 90% of eligible refunds after automated or risk-based checks, enhancing cash flows for exporters and others facing refund delays. Tax paid on plant and machinery and input services could become refund-eligible under certain conditions.

MSME compliance relief is another focus area, with potential measures like an annual return option for small B2C taxpayers, quarterly tax payment for eligible MSMEs, and faster GST registration. The council may also consider ending small-value disputes and withdrawing pending cases below a certain threshold.

In terms of enforcement, the Council is expected to remove GST arrest provisions and increase the prosecution threshold from ₹1 crore to ₹5 crore. If approved, these measures could substantially alter the enforcement framework, particularly for tax evasion allegations. Additionally, the Council will explore measures to simplify export treatment, including clearer foreign-client job work provisions, a simplified mechanism for small e-commerce sellers' multi-State GST registration, and standardized platform-based deliveries at a 5% GST rate.