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By placing agriculture, MSMEs, investment and exports at the centre of economic strategy, and weaving them into an inclusive architecture around Garib, Youth, Annadata and Nari, the government signaled a shift from short-term fixes to long-term institution building.
Recent macroeconomic data suggest that this framework is gaining traction. GDP growth of 7.8% in the April–June quarter and 8.2% in July–September reflects sustained domestic demand, improving investment sentiment and a gradual recovery in exports. At the same time, GST collections through FY 2025–26 have remained robust, crossing INR 2.36 lakh crore in April 2025 and maintaining elevated levels even as refunds increased to support exporters and MSMEs. Together, these trends indicate that indirect tax system has moved beyond the volatility of the transition years and entered a phase of relative stability and maturity.
This creates an opportunity for Budget 2026–27 to reposition indirect taxes from a revenue-focused framework to one that actively supports growth, competitiveness and ease of doing business. The policy challenge today is not structural redesign, but targeted refinement.
GST 2.0 agenda have already set a clear direction for a more efficient, technology-enabled and taxpayer-friendly indirect tax ecosystem. The 56th GST Council meeting reinforced this trajectory by addressing long-pending issues such as rate rationalisation and procedural simplification. What industry now seeks is timely and consistent implementation. Decisions relating to intermediaries and post-sale discounts are particularly important, as they go to the heart of how transactions are structured and priced.
Beyond these immediate issues, structural inefficiencies persist. One of the most persistent distortions continues to be the inverted duty structure. While refund of accumulated input tax credit is allowed, it is confined only to goods and exclude input services and capital goods. In an economy that is increasingly service-led and capital-intensive, this design choice results in large credit build-ups and chronic working-capital stress. Extending refund eligibility across all input categories would restore tax neutrality and directly lower the cost of doing business.
A similar imbalance exists with compensation cess. The withdrawal of the levy without a mechanism to absorb accumulated credits has left entire sectors, particularly automobiles and coal, with stranded balances. These are not tax concessions, but legitimate credit earned under law. Allowing their carry forward, transfer or refund would reinforce the credibility of India’s tax framework and prevent erosion of investor confidence.
Making compliance predictable under Budget 2026 GST was designed as a unified national tax, yet audit and enforcement continue to operate in fragmented silos. Multiple audits, overlapping proceedings and inconsistent positions between central and state authorities have become a major source of uncertainty. A harmonised, risk-based audit framework with clear functional separation between audit, adjudication and review would significantly improve the compliance experience and reduce litigation.
The continued exclusion of petroleum products from GST is perhaps the most significant unfinished reform. Keeping fuels outside the GST chain fragments credits across transport, logistics, aviation and manufacturing, raising costs and undermining competitiveness. Including petroleum products would complete the architecture of a true consumption tax and deliver efficiency gains across the economy.
A pressing procedural concern also arises in penalty-only proceedings against individuals under Section 122(1A) of the CGST Act. Promoters, directors, employees and other connected people may face penalties equivalent to the alleged tax evasion or wrongful ITC, despite no tax being recoverable from them directly. Yet, the current appellate framework requires mandatory pre-deposit of 10% at each appellate stage, resulting in disproportionately high upfront payments. Rationalising or capping pre-deposit requirements in such cases would ensure access to appellate remedies without diluting enforcement.
As GST matures, customs must evolve from a gatekeeper into a trade enabler. One recurring problem is the denial of GST credit on IGST paid through TR-6 challans, typically arising from reassessments or audit objections. Recognising these challans as valid duty-paying documents would remove unnecessary friction and restore tax neutrality.
There is also growing recognition of the need to address legacy litigation under Customs law, much of which continues to occupy adjudicatory and appellate forums without commensurate revenue significance. Accordingly, a calibrated customs amnesty scheme could provide closure, free up resources and allow authorities to focus on high-risk cases.
The Special Valuation Branch (SVB) remains a key source of uncertainty in customs, with investigations often lingering for years due to manual processes, fragmented assessments and lack of clear timelines. Misalignment with transfer pricing regulations further leads to duplication of valuation exercises for related-party transactions. This year’s budget should introduce a time-bound, technology-enabled SVB framework, with self-declaration for routine cases and scrutiny limited to risk-flagged transactions. Accepting transfer pricing documentation as primary evidence and providing a fully digitised submission interface would reduce disputes, enhance transparency and ease compliance, while safeguarding revenue interests.
Union Budget 2026–27 has the opportunity to lock in the gains of the past decade. By advancing GST 2.0, modernising customs and restoring the principle of tax neutrality, indirect taxes can be transformed from a revenue instrument into a growth strategy. Lower costs, faster credits, predictable compliance and smoother trade flows will not only strengthen revenue but also improve India’s competitiveness.
If India is to achieve its Viksit Bharat ambition and moving towards a US$ 5 trillion economy, its indirect tax system must evolve from one that merely collects to one that actively enables investment, exports and enterprise. This Budget has the opportunity to make that shift real.
Shilpa Verma, Associate Director and Ajay Kumar Jha, Assistant Manager, Grant Thornton Bharat, have also contributed to this article.
This article first appeared in The Economic Times on 19 January 2026.
