GST New Update: Capital Goods ITC Refund Over 60 Months

The GST Council has proposed a significant reform: eligible exporters and businesses facing an inverted duty structure (IDS) will be able to claim refunds on accumulated input tax credit (ITC) for capital goods, payable in equal monthly instalments over a 60-month period. 

What's Changing?

Currently, Rule 89 excludes capital-goods ITC from "Net ITC" when calculating refunds on zero-rated supplies, and excludes both capital-goods and input-services ITC from IDS refunds. The recommendation would amend Section 54(3) and the CGST Rules so that these credits are included in the refund computation in specified cases. 

Capital Goods: Refund Over 60 Months 

Taxpayers won't get the full capital-goods ITC in the month they claim it. Instead, they can claim one-sixtieth of the eligible ITC each month, starting from the month the credit was availed. 

For instance, if the eligible ITC on machinery is ₹12 lakh, the refund tied to that asset would be ₹20,000 per month over 60 months, subject to the refund formula, eligible turnover, and other Rule 89 conditions. 

Only capital-goods ITC availed on or after 1 April 2027 qualifies, credit claimed before that date will not be refundable under this recommendation. 

When it applies?

• Zero-rated supplies: Capital-goods ITC will be counted where supplies are made without payment of tax under bond/LUT, as per Rule 89(4). This does not affect zero-rated supplies made on payment of IGST, since capital-goods ITC can already be used to pay such tax. 
• Inverted duty structure: Capital-goods ITC will be counted under Rule 89(5), along with eligible input-services ITC. 
• IDS test unchanged: A refund is available only where the GST rate on inputs exceeds the GST rate on output supplies. A higher rate on input services alone does not create an IDS refund entitlement.

Also Read - GST Return Filing Changes From April 2027: New Rules for ITC and Tax Liability

Conditions and Exclusions

Only eligible ITC may be included. Credit blocked under Section 17(5), credit that is otherwise inadmissible, or credit required to be reversed, including Rule 43 reversals attributable to the relevant period, must be excluded. 

The recommendation does not widen the category of persons eligible for refund under clause (ii) of the first proviso to Section 54(3); rather, it expands the ITC that can enter the refund calculation for categories that are already eligible. 

Also Read - GST Late Fee Waiver: Relief for Small Taxpayers

Practical Impact 

This is primarily a working-capital relief measure for capital-intensive exporters and IDS businesses, such as manufacturers with heavy machinery, plant, equipment, or infrastructure assets. It reduces ITC lock-up while spreading the government's refund outgo over five years. 

Businesses should treat this as a Council recommendation, not yet operative law: final availability and computation will depend on the notified amendments to the CGST Act and Rules.

Also Read - GST New Rules: Major Relief on Notices, Penalties and Appeals