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

The core economic issue highlighted is the locking up of working capital due to unresolved Input Tax Credit (ITC) disputes. Input Tax Credit is the tax a business pays on a purchase, which it can use to reduce its tax liability when making a sale. When genuine buyers lose ITC because a seller defaults on tax payments, it creates a cascading effect, undermining the very principle of GST (removing the cascading effect of taxes). Industry demands, such as wider ITC eligibility and easier refunds from inverted duty structures (where tax on inputs is higher than tax on the final product), aim to convert this stuck capital into productive investment. The real estate sector, particularly affordable housing, is highly sensitive to construction costs, and clarifying ITC rules could significantly impact project viability and housing supply.

The transition to 'GST 2.0' emphasizes the need for a more data-driven and risk-based governance model in tax administration. Industry chambers advocate for fewer disputes and more automated processes, leveraging data already available with entities like the Reserve Bank of India and customs authorities. The proposal for a threshold (₹10,000) below which show-cause notices are not issued reflects a move towards ease of doing business by reducing petty litigation and compliance burdens on businesses. This shift aligns with the broader governance goal of minimizing physical interface between taxpayers and tax authorities, thereby reducing opportunities for corruption and increasing efficiency in tax collection under the Central Goods and Services Tax Act.

The decisions regarding these reforms fall under the purview of the GST Council, a constitutional body established under Article 279A. The Council's role in addressing these complex operational issues demonstrates the ongoing evolution of fiscal federalism in India. The demands for aligning GST rules with RBI norms and simplifying procedures for cross-state operations (like e-commerce warehousing) highlight the complex interplay between central regulations and state-level implementation. The Council must balance the need to safeguard revenue (by preventing tax evasion) with the necessity of facilitating legitimate business operations, reflecting a delicate consensus-building process inherent in a federal structure.