GST Council set to tackle compliance, inverted duty structure; mobile phone rate cut also on radar
The upcoming GST Council meeting is set to prioritise easing compliance burdens for businesses, after the previous session focused heavily on tax rate rationalisation
The correction of the inverted duty structure — where tax on inputs exceeds tax on the finished product — is on the agenda
A possible rate cut on mobile phones is also reported to be under consideration
The meeting follows the September 2025 GST 2.0 overhaul that moved India from a four-slab to a two-slab (plus demerit) rate structure
The GST Council (Article 279A)
The GST Council is a constitutional body established under Article 279A of the Constitution, inserted by the 101st Constitutional Amendment Act, 2016. It is the apex decision-making body for all matters related to the Goods and Services Tax, embodying the principle of cooperative federalism by giving both the Union and the States a seat at the table.
Key Details
- Chaired by the Union Finance Minister; members include the Union Minister of State for Finance and the Finance Minister (or nominated minister) of every state
- Voting weightage: the Union has one-third of the votes, and all states together have two-thirds; decisions require a three-fourths majority of weighted votes cast
- First constituted in September 2016; over 50 meetings have been held since GST's rollout on 1 July 2017
- Functions include recommending tax rates, exemptions, model GST laws, and thresholds; also adjudicates on compensation to states for revenue loss
The compliance and inverted-duty-structure agenda items will be formally decided by the GST Council under its Article 279A mandate, following the consultative, federal process the article establishes.
Inverted Duty Structure and Section 54(3) Refunds
An inverted duty structure arises when the GST rate on inputs (raw materials/components) is higher than the GST rate on the output (finished good), causing input tax credit (ITC) to accumulate rather than being fully utilised against output tax liability. This blocks working capital for businesses, particularly manufacturers.
Key Details
- Refund of accumulated ITC due to an inverted duty structure is provided under Section 54(3) of the CGST Act, 2017
- The refund is computed using the formula in Rule 89(5) of the CGST Rules
- Refunds under this provision are unavailable for certain notified goods/services, and are distinct from the ITC refund available for zero-rated exports (also under Section 54(3))
- Sectors historically affected include textiles, fertilizers, footwear, and mobile phone manufacturing (input components taxed higher than or equal to the assembled handset)
The Council's move to specifically "tackle" the inverted duty structure indicates a rate or refund-mechanism correction is being considered for sectors — including mobile handset manufacturing — where credit accumulation has been a persistent complaint.
GST 2.0 — The September 2025 Two-Slab Rationalisation
At its 56th meeting, the GST Council approved the most significant restructuring of GST rates since the tax's 2017 launch, moving from a four-tier slab structure (5%, 12%, 18%, 28%) to a simplified two-tier structure of 5% and 18%, with a new 40% demerit rate for luxury and sin goods.
Key Details
- New structure effective 22 September 2025 (coinciding with Navratri), except for certain tobacco products
- The 12% slab was largely folded into 5% (mass consumption items) and partly into 18%
- The 28% slab was largely folded into 18%, with luxury/sin goods (e.g., large cars, tobacco, aerated drinks) moved to the new 40% slab
- Mobile phones remain taxed at 18% GST, unchanged by the September 2025 reform
The upcoming Council meeting builds on the GST 2.0 rate rationalisation by turning to unfinished business — compliance simplification and correcting sector-specific anomalies such as the inverted duty structure — with mobile phones flagged as a candidate for a further rate review.
- Article 279A (GST Council) inserted by the 101st Constitutional Amendment Act, 2016
- GST Council voting: Centre 1/3 weightage, States 2/3 weightage; decisions need 3/4 majority
- ITC refund for inverted duty structure: Section 54(3), CGST Act, 2017; refund formula under Rule 89(5), CGST Rules
- GST 2.0 two-slab structure (5%, 18%) plus 40% demerit rate effective from 22 September 2025 (56th GST Council meeting)
- Mobile phones currently taxed at 18% GST