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By: Manoj Mishra
12 Oct 2026 5 min read
If the first chapter of GST 2.0 was about stimulating consumption through lower rates, the second chapter is about energising the engines of growth by unlocking working capital, restoring the seamless flow of input credit and easing the procedural barriers that have long constrained businesses. Thus, the focus has decisively shifted from tax collection to efficiency of the tax system.
As India enters the festive season, the convergence of lower consumer prices, rising consumption opportunities and business-friendly reforms offers a promising setting for the economic activity.
The most consequential recommendation is the expansion of GST refunds, which would directly free up substantial liquidity and increase profitability. The extension of inverted duty refunds to input services and capital goods and capital goods used for exports, addresses a structural weakness that has long persisted despite the promise of seamless credit.
Coupled with 90 per cent risk-based provisional refunds, faster acknowledgements and reduced officer intervention, these refund measures could transform tax credits from dormant accounting balances into productive business capital.
However, the relief remains prospective and conditional. Capital-goods refunds spread over 60 months may moderate immediate gains, while existing accumulated credits and service-driven inversions remain important gaps.
The manufacturing, textiles and capital-intensive industries stand amongst the principal beneficiaries. Pertinently, sectors such as textiles, footwear, fertilisers, renewable energy and industrial manufacturing frequently experience credit accumulation from higher taxed inputs and services.
Accordingly, the wider refund eligibility would improve cash flows and investment capacity. Relaxing credit restrictions on pipelines outside factory premises could directly benefit chemicals, petrochemicals and oil & gas sector, although associated civil works still remain contentious.
Similarly, the pharmaceutical, biotechnology and FMCG sectors could experience benefits across the entire business lifecycle. Allowing credit on free samples and legally mandated destruction of expired inventory address recurring tax costs arising from product promotion and regulatory compliance. These changes could improve the economics of research, manufacturing, inventory management and distribution. The precise treatment of promotional supplies and ordinary commercial write-offs will nevertheless require careful legislative drafting.
Telecommunications and digital infrastructure could receive a much-needed investment stimulus through relaxation of credit restrictions on telecom towers. Similarly, removing the distinct-establishment restriction for exports of services and rationalising place of supply rules for testing, repair, processing and similar services performed on goods in India could strengthen India's competitiveness in global service delivery. Exporters, IT/ITES and global capability centres (GCCs) could benefit from this complementary set of measures.
Retail, e-commerce and hospitality may see a different but equally important dividend. Simplified registration for small sellers using e-commerce warehouses would expand access to national markets, especially during festive demand. Meanwhile, banking sector would gain greater certainty on internal fund-transfer pricing, while targeted clarifications for shipping, agriculture and research services could remove sector specific tax ambiguities.
The council has also signaled a shift towards proportionate, technology-driven tax administration. Proposals to remove GST officers' arrest powers, raise the prosecution threshold from INR 1 crore to INR 5 crore, reduced penalties, a ceiling on pre-deposits in penalty-only appeals and discouraging notices involving tax below INR 10,000 represent a significant recalibration in enforcement procedures.
Yet, automation must not become another source of rigidity. System-driven administration should reduce discretion without compromising natural justice, transparency or meaningful opportunities to explain complex business transactions.
Some significant controversies still remain unresolved.
The absence of Section 11A relief for legacy online-gaming demands is a particularly conspicuous omission. Following the SC's ruling in Gameskraft upholding the GST levy and valuation framework retrospectively, affected businesses continue to face substantial demands relating to earlier periods.
Another important gap concerns genuine purchasers facing denial of credit under Section 16(2)(c), because suppliers failed to discharge tax. While the council stopped short of announcing an immediate relief, it acknowledged the significance of the issue and chose a more cautious route by constituting a committee to examine safeguards for a genuine buyer, who possesses a valid tax invoice, has received the supply and has genuinely paid the supplier in full. This assumes particular importance in the aftermath of the SC's decision in Bhandari Scrap Traders, which upheld the constitutional validity of section 16(2)(c), while leaving unresolved, the practical difficulties faced by compliant recipients in monitoring supplier level tax compliance.
Furthermore, stranded compensation cess credit represents another unfinished chapter of GST 2.0. Following the earlier withdrawal of cess on automobiles, coal and beverages hold accumulated cess credits without corresponding output cess liabilities. Since these credits cannot ordinarily be used against regular GST output, the absence of a transitional utilisation or refund mechanism leaves genuine tax costs locked in balance sheets.
The government also signaled its intention to move towards a centralised and faceless CGST administration framework for taxpayers operating across multiple jurisdictions. While not a formal council recommendation, the announcement aligns with the broader reform agenda consistent with overall reforms.
If implemented on the lines indicated, it could fundamentally reshape scrutiny, audit, adjudication and dispute resolution under GST, much in the same way that faceless assessments transformed the income-tax landscape.
The recommendations underscore that a modern tax system must facilitate investment, liquidity and voluntary compliance alongside revenue collection. As is often the case in tax policy, the strength of the reform will ultimately be measured by the quality of its implementation.
Shilpa Verma, Associate Director, Grant Thornton Bharat; Ajay Jha, Assistant Manager, Grant Thornton Bharat, have also contributed to this article.
This article first appeared in the FE CFO on 12 October 2026.
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