GST Council to address quicker processing of ITC refunds, to remove officer discretion on refunds
Delayed GST refunds and the resulting blockage of working capital have been a long-standing concern for businesses. The GST Council, expected to meet on September 12, is likely to consider an amendment to the GST Act to enable a more automated and risk-based mechanism for processing input tax credit refunds, to reduce delays in their release.
The GST Council, at its next meeting on September 12, is likely to discuss making 90 percent of input tax credit (ITC) refunds automated and risk-based, with the system using taxpayers' risk profiles to identify low-risk claims for faster release instead of relying on an officer-led assessment, a senior government source said.
"The further refinement we are considering is to make this process system-driven and automated. At present, there is some intervention by the officer, who assesses whether the taxpayer is low-risk before the provisional refund is released. Going forward, the system itself will determine the taxpayer's risk based on the risk score," the official told Moneycontrol.
The issue has been particularly acute for businesses facing an inverted duty structure, where tax paid on inputs is higher than the tax collected on output, leading to an accumulation of unutilised input tax credit. While taxpayers are entitled to claim a refund, the prescribed timeline for processing refunds is up to 60 days, with the system showing an average processing time of around 50 days, according to the senior government source. The delay can keep significant working capital locked up with businesses, although aggregate data on the amount of ITC pending for refund is not immediately available.
"The problem in cases of an inverted duty structure is that the input tax is higher while the output tax is lower. The difference is not immediately returned to the taxpayer as cash and, therefore, working capital gets stuck," the source said.
An inverted duty structure arises when the GST rate on inputs is higher than that on the finished product, leading to an accumulation of input tax credit that businesses may seek to claim as a refund.
The law prescribes a 60-day window to process 100 percent refunds, but even that means funds sitting locked up for weeks at a stretch. "Our system shows that the average time taken is around 50 days... but it means that the taxpayer's money remains stuck. The objective is to reduce this delay," the official said.
