GST Council Takes Up a 17-Day Refund Timeline, Faster Registrations and Wider Input Tax Credit
The GST Council, at its 57th meeting in New Delhi (its first meeting in over a year), was set to consider a package of process reforms covering refunds, registrations, input tax credit and penalties. No change in GST rates is on the agenda.
Refunds in 17 days: A refund application would be acknowledged (formally accepted as complete) within 10 days. 90% of the refund would be released after an automated risk check, and the rest within 7 days of the acknowledgement. At present, acknowledgement and processing can take 21 to 45 days, which locks up businesses' working capital (the cash needed for daily operations).
Faster registrations: Today, about 61% of applicants get GST registration within three working days without any officer stepping in. The proposal aims to extend this automated route to more applicants and cut unnecessary queries and rejections. Suspended registrations would be restored automatically once a procedural lapse is fixed.
Small e-commerce sellers: Small businesses selling to buyers in other states through e-commerce platforms could be verified in their home state, instead of having to register in every state.
Closing a business: If a business has paid all its tax and filed all returns, cancelling its registration would become largely automatic, without a physical visit to verify its premises.
Input tax credit (ITC): The Council is examining relaxing some "blocked credits" under Section 17(5) of the CGST Act (for example, on corporate health and life insurance, telecom towers, pipelines, motor vehicle hiring and outdoor catering). A buyer who has the invoice, has received the goods and has paid the supplier in full, including tax, would keep the credit even if a supplier further up the chain fails to pay tax. Most changes are expected to apply from April 2027.
The GST Council (Article 279A)
The GST Council is a joint body of the Union Finance Minister and the finance ministers of all states. It recommends the main rules of the Goods and Services Tax (GST): tax rates, exemptions, thresholds and procedures such as refunds and registration. It was created by the Constitution itself under Article 279A, added by the 101st Constitutional Amendment Act, 2016. Because both the Centre and the states give up some of their own taxing freedom under GST, the Council is the place where they decide together, which makes it a key example of cooperative federalism.
The refund, registration and ITC changes are procedural matters that the GST Council recommends under Article 279A. Changes to timelines and blocked credits will then need amendments to the CGST and SGST Acts or Rules by Parliament, the state legislatures and the governments.
Input Tax Credit (ITC) Mechanism Under GST
Input tax credit is the heart of GST. When a business buys raw materials or services, it pays GST on them. When it sells its own product, it subtracts the GST it already paid on purchases from the GST it owes on its sales. This way, tax falls only on the value added at each step, and there is no "tax on tax". If a credit is blocked or denied, that tax becomes a real cost for the business and usually raises prices for the final buyer.
The proposals touch both ends of this mechanism. Relaxing Section 17(5) would let businesses claim credit on items such as corporate insurance, telecom towers and pipelines. Protecting a buyer who holds the invoice, has received the goods and has paid the supplier in full would soften the Section 16(2)(c) problem.
Inverted Duty Structure Under GST
An inverted duty structure is a situation where the GST a business pays on what it buys (inputs) is higher than the GST it charges on what it sells (output). For example, a fabric maker may pay 18% GST on dyes and chemicals but charge only 5% GST on the fabric. Because it collects less tax than it has already paid, unused credit piles up. The law lets such a business claim a refund of that unused credit, along with exporters, so refund speed matters a lot for their cash flow.
The 17-day plan (acknowledgement in 10 days, then 90% released after a risk check, and the balance within 7 days) builds on the provisional refund route in Section 54(6). Sectors with inverted duty also want the Council to allow refunds of credit on input services and capital goods, the gap that the VKC Footsteps judgment asked the Council to look at again.
- Meeting: 57th GST Council meeting, New Delhi, October 2026; first meeting in over a year
- Proposed refund timeline: 17 days in total (acknowledgement within 10 days; 90% released after risk check; balance within 7 days of acknowledgement)
- Current refund acknowledgement and processing: 21 to 45 days in practice
- Registration within 3 working days without officer intervention: about 61% of taxpayers at present
- Most changes expected to take effect from April 2027
- GST Council: Article 279A, added by the 101st Constitutional Amendment Act, 2016; Centre's vote weight one-third, states' two-thirds; decisions by three-fourths of weighted votes
- ITC conditions: Section 16(2) CGST Act; blocked credits: Section 17(5)
- Refunds: Section 54 CGST Act; interest on delayed refunds: Section 56 (up to 6%)
- VKC Footsteps judgment: 13 September 2021 (upheld Rule 89(5) formula for inverted duty refunds)