The government is considering changes to certain GST rules that could help businesses unlock around ₹25,000 crore stuck as input tax credit (ITC). The proposed changes could also ease working-capital pressure on companies.
The changes do not necessarily involve a reduction in GST rates. However, if businesses are able to utilise their blocked ITC, their costs could come down, potentially creating room for discounts on cars, online purchases and some services.
The 57th GST Council meeting is scheduled for October 7. Before the meeting, officials are expected to discuss several issues, including the rules governing input tax credit. The discussions could pave the way for changes aimed at reducing the amount of capital blocked for businesses.
4 changes under consideration
1. ITC on motor vehicle and construction-related work: At present, input tax credit is restricted for certain works contracts related to motor vehicles and construction of immovable property. A proposal to relax these restrictions could benefit automobile, travel and other businesses. Lower costs could create scope for higher discounts on vehicles.
2. ITC when suppliers fail to deposit GST: Under the existing system, a buyer can face problems in claiming ITC if the supplier does not deposit the GST. A proposal may allow the buyer to claim the credit if the goods or services were received and payment was made through banking channels. This could reduce the tax burden and working-capital pressure on businesses.
3. Use of ITC across states: Companies operating in multiple states currently face restrictions on using ITC generated in one state against GST liabilities in another. A proposal to allow greater cross-state utilisation could particularly benefit telecom, infrastructure and IT companies by improving cash flow.
4. Use of compensation cess-related ITC: At present, ITC related to compensation cess can generally be used only against compensation cess liability. A proposal to allow such credit to be used against regular GST liability could unlock funds for automobile and other sectors that pay compensation cess.
How consumers could benefit
Cars: If automobile companies and dealers have less capital blocked in ITC, they could have greater scope to offer discounts, particularly during the festive season.
Online shopping: Lower working-capital costs for e-commerce companies could create room for additional offers and discounts.
Mobile plans: Better utilisation of ITC could improve cash flow for telecom companies, potentially reducing their operating costs and creating scope for cheaper plans.
