The Government has outlined steps taken to strengthen the mechanism for apportionment and settlement of Integrated Goods and Services Tax (IGST) revenue between the Centre and States. The issue was addressed in Rajya Sabha Unstarred Question No. 1838 , answered by the Ministry of Finance on August 4, 2026.
The response comes amid questions over concerns raised by States regarding IGST settlement, including possible discrepancies, delays and anomalies in the settlement process.
Committee of Officers Set Up to Review IGST Settlement
The GST Council, at its 54th meeting held on September 9, 2024, in New Delhi , approved the constitution of a Committee of Officers on IGST Settlement.
Following this decision, a committee comprising officers from the Central Government and various State Governments, including Kerala, was constituted to examine issues relating to IGST settlement.
The committee was tasked with recommending measures to improve the existing settlement mechanism. Its scope included proposals relating to:
- Legislative amendments
- System enhancements
- Refinement of the formula for apportionment of IGST balances
- Treatment of both positive and negative balances in the IGST account
The Government's response indicates that the review was aimed at addressing operational issues in the settlement process and making the mechanism more effective.
SOP Introduced for Abnormal ITC Reversals
One of the key recommendations of the Committee of Officers was the introduction of a Standard Operating Procedure (SOP) for dealing with abnormal reversals of Input Tax Credit (ITC) .
According to the Government, abnormal ITC reversals had been contributing to irregularities in the IGST settlement process.
The implementation of a defined SOP is therefore intended to provide a more structured approach for handling such cases and reduce settlement-related irregularities.
Changes to Ineligible and Time-Barred Credit
The Committee also recommended aligning ineligible credit and time-barred credit with the structure of Form GSTR-3B .
As part of this exercise, specific changes were approved in relation to the relevant STL categories:
- STL 1.06 , primarily covering domestic ineligible credit, and STL 1.10 , relating to ineligible credit concerning imports, were approved for merger.
- STL 1.11 was approved to be merged with STL 1.07 .
These changes are intended to bring the treatment of such credits more closely in line with the reporting structure followed in GSTR-3B.
Greater Clarity in GST Rules
The Committee also recommended incorporating the corresponding section numbers, rule numbers and sources in the GST Rules.
In addition, the Government stated that necessary clarifications were recommended in areas where the existing Rules lacked precision.
This could help reduce ambiguity in the interpretation and implementation of provisions connected with IGST settlement.
GST Settlement of Fund Rules, 2026 Notified
The Committee's report was presented before the GST Council at its 55th meeting .
Subsequently, following approval by the GST Implementation Committee, the Goods and Services Tax Settlement of Fund Rules, 2026 were notified and published in the Gazette on March 30, 2026 .
The Government has also confirmed that the Standard Operating Procedure recommended by the Committee of Officers has been implemented .
What This Means for IGST Settlement
The Government's response reflects an effort to address practical issues in the IGST settlement mechanism through a combination of procedural, systemic and rule-based changes.
The measures focus particularly on abnormal ITC reversals, classification of ineligible and time-barred credit, greater clarity in the Rules and improvements in the formula for apportionment of IGST balances.
For States and tax administrators, these changes are significant because the IGST settlement mechanism plays an important role in determining the distribution and settlement of GST revenue.
Key Takeaways
- A Committee of Officers on IGST Settlement was constituted following the 54th GST Council meeting.
- The committee included officers from the Centre and various States, including Kerala.
- An SOP for abnormal ITC reversals has been implemented.
- Certain STL categories relating to ineligible credit were approved for merger.
- GST Rules are being strengthened through references to relevant sections, rules and sources.
- Clarifications have been provided in areas where existing Rules lacked precision.
- The Goods and Services Tax Settlement of Fund Rules, 2026 were notified on March 30, 2026.
- The Government has stated that the committee's recommendations have been incorporated into the settlement framework.
The latest clarification provides an insight into how the Government has responded to concerns surrounding IGST settlement and the measures introduced to make the process more consistent and transparent.
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