Centre Mulls Allowing Refund of Unutilised ITC on Capital Goods Under Inverted Duty Structure

Last updated: 13 October 2025

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The Central Government is exploring the possibility of allowing refunds for unutilised Input Tax Credit (ITC) specifically on capital goods when businesses operate under an inverted duty structure. This move aims to ease working capital blockages for sectors where input taxes are higher than output taxes. Currently, only ITC on raw materials can be refunded under such circumstances, leaving credits on capital goods and services stranded, which impacts liquidity for many industries.

According to a senior government official, the Central Government is actively considering allowing refunds of unutilised ITCon capital goods under the inverted duty structure (IDS). The proposal, if implemented, would mark a crucial step towards rationalising credit flow and reducing working capital blockages in sectors affected by inverted duty rates - where the tax rate on inputs is higher than that on finished goods, leading to accumulation of unutilised ITC. "The government has the appetit

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FAQ :

The government is considering allowing refunds of unutilised Input Tax Credit (ITC) on capital goods under the inverted duty structure.

An inverted duty structure occurs when the tax rate on inputs (raw materials) is higher than the tax rate on finished goods.

Currently, under GST, refunds of unutilised ITC are permitted only for inputs (raw materials) under the inverted duty structure. Refunds for capital goods and input services are not allowed.

This change is important as it could help resolve liquidity constraints and reduce working capital blockages for industries affected by inverted duty rates, particularly in manufacturing and export sectors.

The change may not be immediate, as the government is currently focused on stabilising the GST 2.0 framework before introducing new policy amendments.

Enabling ITC refunds on capital goods could align with 'Make in India' objectives by addressing inefficiencies in the GST credit mechanism and improving the ease of doing business.

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CCI News Desk

Finance news reporter covering taxation, GST, income tax, business compliance, and economy updates. I simplify complex financial topics into easy-to-understand articles for professionals, taxpayers, and business owners on leading finance and tax platforms.

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