GST reforms: What changes in compliance, input tax credit, refunds and litigation from 2027

The latest changes proposed by the GST Council will help cut costs and ease cash flow for companies.

The latest reforms by the Goods and Services Tax (GST) Council are set to enhance the ease and cost of doing business, but no fresh tax rates mean there will be no immediate price cuts for consumers. At its 57th meeting on 8 October, the Council an nounced sweeping changes in enforcement, litigation, compliance and registration, alongside wider input tax credit (ITC) and faster refunds. Small businesses and taxpay ers stand to gain the most from simpler pro cedures, lower compliance thresholds and reduced penalties.

Input tax credit (ITC)To curb cascading tax, ease working capital pressures and reduce disputes, the Council has reduced ITC restrictions on expenses such as health and life insurance and out door catering. It has also allowed refunds of accumulated ITC on input services in speci fied inverted duty cases for eligible credits from 1 November 2026, and refunds on capi tal goods for zero-rated supplies and inverted duty cases, spread over 60 months for eligible credits from 1 April 2027.

In insurance, the change will ease the cost burden, but will not automatically lower GST on individual premiums. "Allowing ITC in group health and life insurance is a welcome step. It reduces the tax burden on employers and could encourage wider employee cover age, particularly among micro, small and me dium enterprises (MSMEs). However, the real success will be when these savings translate into insurance benefits and more comprehen sive coverage for employees," says Mayank Gosar, CEO, Softcon Capital.

"The 18% ITC can make group insurance more affordable for smaller businesses, which often rely on such benefits to attract and re tain talent," says Sajja Praveen Chowdary, Director & CEO, Policybazaar for Business. "The savings could be channelled towards business growth and expansion or used to en hance employee benefits. Over the medium to long term, wider insurance coverage among the MSME workforce can also reduce the dependence of lower-income households on government-funded healthcare and social security schemes," he adds.

Enforcement & litigationAmong the biggest changes in enforcement burden and litigation are the complete with drawal of arrest powers under GST through the proposed omission of Section 69, and reduction in the maximum general penalty from Rs.25,000 to Rs.10,000. The prosecution threshold has also been raised from Rs.1 crore to Rs.5 crore. Besides, clearer guidelines have been issued for demand notices and adjudica tion orders.

Faster refundsThe Council has recommended amendments in Section 54 of the CGST Act, 2017 and the rel evant CGST Rules, 2017, to enhance the pro cessing of refunds in two phases. In the first phase, automatic sanctioning for full refunds of excess balances in electronic cash ledgers has been allowed. The time limit for issuing an acknowledgement or deficiency memo has also been cut from 15 days to 10 days.

For eligible refund claims relating to zero rated supplies and inverted duty structures, 90% of the claimed amount will be sanctioned provisionally through an automated, risk based system. "Faster, system-driven refunds, including the proposed release of 90% of eligible refunds after risk assessment, can unlock working capital and im prove liquidity, particularly for export ers and MSMEs," says Gosar.

The second phase will provide au tomated processing and full refunds for eligible zero-rated supply claims, subject to verification and adjustment of pending dues.

Registration and complianceTo make GST administration simpler, the Council has proposed clearer documentation requirements and a more user-friendly registration por tal, automatic acceptance of specified registration amendments, simplified cancellation procedures, and better reconciliation of GST returns and ITC claims to reduce the notices resulting from mismatches. It has also allowed automatic registration for eligible small sellers using e-commerce plat forms to supply goods in states where they have no physical presence, subject to conditions.

According to Finance Minister Nirmala Sitharaman, the reforms will come into effect from 1 April 2027.