GST ITC Refund Proposal: Input Services and Capital Goods

The 57th GST Council recommended expanding the input tax credit (ITC) that can enter certain refund calculations. This matters to exporters making zero-rated supplies without payment of tax and businesses that already qualify for an inverted-duty refund. These are proposed changes; a Council release does not itself amend the CGST Act or Rule 89. Sources: Council release, official FAQ. Our 57th GST Council overview covers the other meeting recommendations.

Which credit is proposed to be included?

For an inverted-duty refund, the Council recommended including eligible ITC on input services availed on or after 1 November 2026 in “Net ITC”. It also recommended including eligible ITC on capital goods availed on or after 1 April 2027 in refund calculations for both inverted-duty and zero-rated supplies made without payment of tax. Capital-goods credit would be attributed over 60 months, rather than refunded in full in the purchase month. Official FAQ.

Those dates describe the ITC covered by the proposal; businesses should verify the commencement of the eventual legal amendments separately.

The key limit for inverted duty

Higher tax on an input service alone would not create an inverted-duty refund. The official FAQ says the qualifying inversion still depends on comparing the GST rate on inputs with the rate on outward supplies. If inputs are taxed at 5%, output at 5% and a professional service at 18%, the service cost alone does not establish an inverted-duty claim. Official FAQ.

Blocked or otherwise inadmissible credit would not become refundable merely because the formula changes. Applicable reversals must still be considered. Exporters should also distinguish zero-rated supplies under bond or LUT from exports made on payment of integrated tax; the FAQ says the proposed capital-goods calculation targets the former route. Official FAQ.

A practical preparation list

Tag eligible input-service ITC by availment date, keep a separate capital-goods register, and reconcile refund calculations to returns and export documents. For capital goods, capture the month of availment so a future 60-month attribution can be calculated accurately. Review the notified formula and effective date before filing a claim under any revised rule.

Under the current law, refunds are governed by section 54 of the CGST Act, and zero-rated supplies are defined in section 16 of the IGST Act. For help preparing a claim, see our GST refund application service.