GST STRUCTURAL REFORMS 2.0
The Structural Reforms 2.0 have aimed at making significant relaxations in relation to various processes, refunds, exports, with a significant change in terms of removal of arrest powers from GST officers.
While the broad theme was to undertake structural reform, at the same time, significant boost has been provided to exporters and inverted tax structure sectors by providing refund for capital goods and input services, unlocking significant capital which can be optimally utilized for further expansion. ITC reforms in the form of employee related expenses including insurance, catering, as also business expenses like samples, expired stock destruction further supports Government’s efforts towards achieving complete value-added taxation.
Unblocking of Input Tax Credit:
The GST Council has announced rationalisation of blocked credits by amending Section 17(5) of the CGST Act, unblocking ITC on employee group health and life insurance, outdoor catering, goods written off after expiry of shelf life, free samples, and telecom towers and pipelines laid outside factory premises. However, key issues remain unclarified, including recoveries from employees, rate-notification challenges for catering, ITC on goods destroyed in manufacturing, and promotional items. Separately, a committee will examine implementation of Section 16(2)(c) for bona fide purchases from non-existent suppliers and fraudulent ITC.
Refund Reforms:
Accumulated ITC on capital goods is proposed to be refunded for zero-rated supplies under Rule 89(4), and under the inverted duty structure under Rule 89(5), with IDS refunds additionally covering ITC on input services.
However, the change is prospective only, applying to acquisitions after 1 November 2026 for input services and 1 April 2027 for capital goods, and does not address past accumulation.
The cap under Rule 89(4)(C) limiting zero-rated supply of goods to 1.5 times the value of like goods domestically supplied is proposed to be removed- offering significant relief to exporters.
Expanded scope of zero-rated supplies:
Export benefits extended for services supplied to/through foreign branches and for services performed in India on foreign-owned goods. This may likely also impact import of services which were hitherto not taxable.
Zero-rated for non-physical exports:
Supplies by Indian manufacturers to overseas customers, where goods are delivered to FTWZs for warehousing or further processing, shall be considered as zero-rated.
Faceless assessment and decriminalisation:
In a major overhaul of penal provisions, GST Council has completely withdrawn arrest powers granted to officers in relation to offences under the GST law. Monetary threshold for institution of prosecution under Section 132 also has been expanded. Central Government has also proposed to introduce faceless assessment for taxpayers under Central jurisdiction.
E-Commerce – Simplification and Rationalisation of GST Framework:
The proposed reforms simplify GST registration for small B2C sellers supplying through ECOs, enabling interstate expansion without a physical presence in each State, subject to prescribed conditions and contractual arrangements. Further, GST on specified delivery services will be discharged by ECOs at 5% without ITC, while withdrawal of GTA exemption for ECO-linked supplies may increase tax incidence and require ECOs to reassess their delivery and logistics arrangements.
Reforms in E-way bill framework:
The GST Council has proposed significant rationalisation of the e-way bill enforcement framework by limiting interception of goods in transit in origin and destination states with exceptional checks in other jurisdictions based upon lack of documentation, specific intelligence and prior approval, thereby aimed at ensuring smooth movement of goods and reduced logistical disruptions.
Clarification on rates of goods and service:
Clarifications have been provided for goods and services which underwent rate rationalisation during GST 2.0. Benefit has been extended in relation to passenger transportation, renting of motor vehicles and hospitality sector. Also, transfer of title in IPRs, whether temporary or permanent, will be uniformly treated as supply of services.
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