As India moves closer to the second phase of GST reforms, the focus has clearly shifted from stabilisation to simplification and structural fine-tuning. In 2025, the GST Council continued its efforts on procedural clean-ups, stronger digital enforcement and long-pending discussions on rate rationalisation, setting the stage for what policymakers are calling "GST 2.0."
According to reports, GST 2.0 has played a key role in strengthening India's indirect tax framework, with monthly GST collections consistently crossing Rs 1.7 lakh crore. As India works towards its goal of becoming a developed nation by 2047, experts say a stable, neutral and predictable GST structure is essential to support long-term economic growth.
Rate Rationalisation Tops Budget 2026 Wishlist
One of the biggest expectations from the Union Budget 2026 is meaningful progress on GST rate rationalisation. Despite several rounds of discussion, the existing multi-rate structure continues to raise concerns for businesses.
Industry experts point out that issues such as valuation disputes, place of supply complexities and blocked ITC remain unresolved. Simplifying tax rates and removing ambiguities could significantly reduce litigation and compliance burdens.
Demand to Bring Petroleum and Alcohol Under GST
A major demand from industry bodies is the inclusion of petroleum products, natural gas and alcoholic liquor within the GST framework. Currently, these items are taxed outside of GST through a combination of VAT and excise duties, resulting in tax cascading.
Bringing these products under GST, industry leaders argue, would enable a seamless flow of input tax credit, reduce operating costs for sectors like transport, aviation and logistics, help stabilise fuel prices and ease inflationary pressures across the economy.
Concerns Over 180-Day ITC Reversal Rule
Another key issue flagged by businesses is the requirement to reverse ITC along with interest if payments to suppliers are not made within 180 days from the invoice date.
Companies say this provision overrides commercially agreed credit terms and penalises recipients even in cases of genuine payment delays. Industry stakeholders are urging the government to relax, shorten or waive this requirement to better align GST law with commercial realities.
Inverted Duty Structure Refunds Under Focus
Refunds under the Inverted Duty Structure continue to be a significant challenge, particularly for MSMEs and small manufacturers. Currently, the GST law allows refunds of accumulated ITC only on inputs, excluding input services and capital goods.
This restriction has led to liquidity challenges for businesses. Experts recommend expanding refund eligibility to include input services and capital goods to improve cash flow and reduce working capital stress.
Clarity Sought on Compensation Cess Credits
With the withdrawal of compensation cess on motor vehicles, businesses are also seeking clarity on the transition and utilisation of accumulated cess credits. Large amounts remain locked in electronic credit ledgers, and taxpayers want clear rules on carry-forward, utilisation or refund of these balances under GST 2.0.
Other Key Industry Expectations
Additional demands ahead of Budget 2026 include:
- Relaxation of ITC restrictions on office fit-outs
- Greater clarity and relief for the solar power sector
- Consistent policy approach to reduce frequent interpretational changes
Industry leaders believe the upcoming Budget presents an opportunity to convert years of GST reform discussions into practical measures that improve ease of doing business.
Expert View
"As India positions itself for deeper global integration, a predictable and investment-friendly indirect tax framework anchored in clarity, consistency and digital certainty is crucial," a tax expert said. "Budget 2026 has the potential to turn the GST reform journey into tangible, sector-wide ease of doing business."
With GST 2.0 gaining momentum, stakeholders are now watching closely to see whether the next Budget delivers on long-standing reform expectations.
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