Quick Summary
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 capita
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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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