GST 2.0: From stuck tax credit to fewer disputes, industry chambers list key reform demands

Industry chambers are calling for the next phase of goods and services tax (GST) 2.0 to focus on unlocking input tax credit (ITC), speeding up refunds, easing compliance and reducing litigation, as the GST Council prepares to review further reforms to the tax regime.

The Council will meet on Thursday to consider the next phase of GST 2.0.

The Economic Times reported earlier this week that the agenda could include measures to unlock stuck input tax credit, ease compliance, reduce litigation and move GST enforcement towards a more automated, risk-based system.


Also Read: GST Council to consider sweeping reforms to unlock tax credit, ease compliance

The demands go beyond last year's rate rationalisation, with businesses seeking changes across ITC, registration, returns, refunds, exports and dispute resolution. The broader push is for a more automated, data-driven and risk-based GST system that reduces the working capital locked up in tax credits and limits procedural disputes.

"The GST Council meeting is expected to focus on addressing issues arising from the rate rationalisation exercise undertaken so far," said L. Badri Narayanan, chairman, National Council on Indirect Taxes, ASSOCHAM.

Simplified returns, faster refunds, fewer disputes and a seamless flow of ITC would lower compliance costs and strengthen taxpayer confidence, he said.

ITC takes centre stage

A key industry expectation is protection for bona fide buyers who lose ITC because a supplier fails to pay tax.

Ashok Kumar Batra, chair of the Indirect Taxes Committee at PHDCCI, said genuine buyers should not lose their input tax credit because of a seller's tax default. If the buyer has a valid invoice, received the goods or services and made the payment through banking channels, the government should recover the unpaid tax from the defaulting seller instead, he said.

Industry is also seeking wider ITC eligibility for currently blocked business expenses, including motor vehicles, food and beverages, outdoor catering, and certain employee-related services.

Another demand is a mechanism to utilise or refund compensation cess balances stranded after the cess was discontinued, along with easier transfer of ITC between GST registrations under the same PAN.

"Unlocking blocked input tax credit under Section 17(5) can lower costs across industry and make Indian goods and services more competitive globally," said Bipin Sapra, partner at EY, as per The Economic Times report.

Refunding accumulated credit from inverted duty structures could also convert locked-up working capital into deployable capital and support investment, he said.

Less litigation, paperwork

Industry chambers are backing a proposed ₹10,000 threshold below which show-cause notices would not be issued, including for pending cases.

Also Read: Next-gen GST: Taking India's reform journey forward

They also want taxpayers to be given a mandatory opportunity to respond before larger demands are converted into show-cause notices, and clearer standards for distinguishing genuine short payments from fraud or suppression.

Faster and more automated refunds are another priority, with industry seeking greater use of data already available with customs, the Reserve Bank of India and other government systems instead of repeated manual documentation.

For exporters, the chambers want clearer treatment of supplies to overseas branches and alignment of GST rules with RBI norms on export payments.

Easier registration and returns

PHDCCI's Batra also called for faster, more automated GST registration for low-risk businesses, including automatic processing of routine changes such as additions of business addresses and changes in directors or partners.

He also said that industry is seeking simpler annual returns and a quarterly payment option for small businesses supplying only to unregistered customers.

For e-commerce, Batra backed a proposal to allow small sellers to use an e-commerce platform's warehouse as their place of business in other states, while seeking tighter, intelligence-led checks on e-way bills and transit, with detention reserved for genuine tax evasion rather than technical lapses.

Real estate wants ITC clarity

For real estate, the next phase of GST reform is less about further rate cuts and more about improving cash flows through ITC.

"The next phase of GST 2.0 goes beyond rate rationalisation and focuses on unlocking input tax credit, improving cash flows and simplifying compliance," Shobhit Agarwal, CEO at ANAROCK Capital told ET Online.

The 2025 reduction in GST on cement from 28% to 18% has already reduced the tax burden on a key construction input, but greater ITC availability and faster refunds could have a larger impact on project viability, he said.

Affordable housing is likely to benefit most, given its sensitivity to construction and financing costs.

Its share of new supply fell to 10% in the first nine months of 2026 from 26% in 2021, Agarwal said.

The sector is seeking clarity on ITC for construction inputs and services, faster release of accumulated credits and a review of the 5%/1% residential construction structure, which does not allow developers to claim ITC.

It also wants clearer GST treatment of development rights, joint development agreements and floor-space index transactions.

For developers, the bigger payoff from GST 2.0 is therefore expected to come through better tax efficiency and working-capital flows, rather than another round of headline rate cuts.