GST reforms: Refunds, wider ITC mark third phase of reform as India targets global supply chains, says PwC’s Pratik Jain

Nearly a decade after its implementation, the Goods and Services Tax (GST) in India is advancing towards a crucial stage of maturity, according to a report by PwC’s Pratik Jain. The tax system has undergone two significant phases so far. The initial phase aimed at stabilising compliance, while the subsequent phase concentrated on rationalising rates, leading to a simplified three-tier rate structure in September 2025.

The latest announcements during the 57th council meeting herald the launch of the third phase of GST reform, which aims to implement bold policy changes and enhance ease of doing business as India aspires to become a key player in the global supply chain.

The council made a significant decision to alleviate severe working capital stress by broadening and hastening GST refunds. This policy shift, part of the September 2025 rate rationalisation exercise (GST 2.0), has resulted in certain sectors accumulating GST credits. In such cases, refunds can now be claimed for input tax credits (ITC) accumulated on raw materials as well as input services and capital goods.

This expansion in the scope of GST refunds is expected to provide much-needed relief to businesses, particularly those operating global capability centers.

Another progressive move is the inclusion of core business expenses such as employees' insurance under GST credits. This adjustment is anticipated to optimise operational costs for businesses, contributing to a more favourable business environment. The foundation for the forthcoming phase of transformative reforms, possibly designated as GST 3.0, has been laid.

This potential next phase may target the phased inclusion of petroleum and power sectors, aligning with global best practices. The timing of these reforms is strategically advantageous, potentially providing a much-needed stimulus to the economy and stock markets, given the prevailing global uncertainties.