India's GST framework is set for another round of corrections as the Centre and states prepare to tackle inverted duty structures, the Mint reported. The move follows the GST rate cuts announced in September and is aimed at resolving a persistent distortion in the tax system.
People familiar with the matter told the Mint that the GST Council is examining duty inversion across several sectors, including select railway components, metal ores and concentrates, water pumps, fertilizers, bicycles and parts of the textiles value chain. The Council had partially addressed textile-related issues on 3 September but is now expected to revisit the segment.
Inverted duty structures arise when inputs attract a higher GST rate than the finished product, creating pricing distortions and locking up working capital for businesses. Companies often seek refunds of excess input tax paid, which has historically triggered disputes. In 2021, the Centre estimated such refund outflows at roughly Rs 30,000 crore annually.
A ministerial panel led by Bihar deputy chief minister Samrat Chaudhary has already completed significant groundwork to address these anomalies, the Mint reported. A separate group headed by Goa chief minister Pramod Sawant is reviewing GST treatment in the real estate sector, including transactions involving transfer of development rights.
The deliberations are expected to take time before final proposals are framed. The GST Council is likely to meet before February to assess the revenue impact of the September reforms, and new recommendations on inverted duties may be taken up at that meeting.
Tax experts cited by the Mint noted that the September rate rationalisation marked meaningful progress, but further adjustments remain essential. Amit Maheshwari, tax partner at AKM Global, said service categories with high value addition or public relevance-such as goods transport, concessional-rate job work and passenger transport-should also be reviewed by the fitment committee. He added that transitional relief would be useful for businesses that procured inputs at earlier, higher tax rates and now face large accumulated credits.
Indirect tax expert R. Muralidharan told the Mint that while the government permits refunds of unutilised input tax credits arising from inverted duty structures, the mechanism currentlyIndia's GST framework is set for another round of corrections as the Centre and states prepare to tackle inverted duty structures, the Mint reported. The move follows the GST rate cuts announced in September and is aimed at resolving a persistent distortion in the tax system.
People familiar with the matter told the Mint that the GST Council is examining duty inversion across several sectors, including select railway components, metal ores and concentrates, water pumps, fertilizers, bicycles and parts of the textiles value chain. The Council had partially addressed textile-related issues on 3 September but is now expected to revisit the segment.
Inverted duty structures arise when inputs attract a higher GST rate than the finished product, creating pricing distortions and locking up working capital for businesses. Companies often seek refunds of excess input tax paid, which has historically triggered disputes. In 2021, the Centre estimated such refund outflows at roughly Rs 30,000 crore annually.
A ministerial panel led by Bihar deputy chief minister Samrat Chaudhary has already completed significant groundwork to address these anomalies, the Mint reported. A separate group headed by Goa chief minister Pramod Sawant is reviewing GST treatment in the real estate sector, including transactions involving transfer of development rights.
The deliberations are expected to take time before final proposals are framed. The GST Council is likely to meet before February to assess the revenue impact of the September reforms, and new recommendations on inverted duties may be taken up at that meeting.
Tax experts cited by the Mint noted that the September rate rationalisation marked meaningful progress, but further adjustments remain essential. Amit Maheshwari, tax partner at AKM Global, said service categories with high value addition or public relevance-such as goods transport, concessional-rate job work and passenger transport-should also be reviewed by the fitment committee. He added that transitional relief would be useful for businesses that procured inputs at earlier, higher tax rates and now face large accumulated credits.
Indirect tax expert R. Muralidharan told the Mint that while the government permits refunds of unutilised input tax credits arising from inverted duty structures, the mechanism currently applies only to input goods. He argued that the refund facility should be extended to input services and capital goods since the rationale remains consistent across categories.
KPMG India partner Abhishek Jain said the post-September rate cuts have left many businesses with accumulated credits on account of higher taxes on input services. While companies can claim refunds for input goods, credit accumulation on services and capital goods continues to strain working capital.
Addressing inverted duty structures has long been a priority for the GST Council, but the Mint noted that the process is complicated due to diverse value chains and sector-specific variables. In September, the Council reduced GST rates on manmade fibre from 18% to 5% and on manmade yarn from 12% to 5%, marking a significant step toward aligning rates across the textile industry. applies only to input goods. He argued that the refund facility should be extended to input services and capital goods since the rationale remains consistent across categories.
KPMG India partner Abhishek Jain said the post-September rate cuts have left many businesses with accumulated credits on account of higher taxes on input services. While companies can claim refunds for input goods, credit accumulation on services and capital goods continues to strain working capital.
Addressing inverted duty structures has long been a priority for the GST Council, but the Mint noted that the process is complicated due to diverse value chains and sector-specific variables. In September, the Council reduced GST rates on manmade fibre from 18% to 5% and on manmade yarn from 12% to 5%, marking a significant step toward aligning rates across the textile industry.
Please click here to view the full story on Money Control.