Industry seeks major reforms on input tax credit rules to boost cash flows, operational efficiencies
In yet another plea to improve the intricacies under the Goods and Services Tax (GST) regime, financial experts and industry leaders have approached the government, proposing a series of sweeping reforms aimed at easing the bottlenecks for the industry, particularly with regard to the Input Tax Credit (ITC) framework.
The move comes amid widespread concerns about mounting credit accumulation and liquidity constraints faced by businesses under the current GST system, which has been impacting business liquidity, said sources familiar with the development.
“The current system has created substantial working capital challenges for businesses across sectors, prompting calls for immediate intervention,” said sources quoting the representations, which have been submitted to the revenue department at the Finance Ministry.
Also, as part of these representations, there are recommendations “seeking a comprehensive review of the ITC mechanism, with the aim to address structural bottlenecks that have stifled working capital efficiency across sectors. Key issues identified include mandatory cash payments under the Reverse Charge Mechanism (RCM), the inability to transfer credits between different branches of the same company, and the lack of a streamlined refund process for unutilised ITC,” sources added.
Industry claims that “businesses are facing ITC accumulation due to multiple factors, including the absence of corresponding outward supplies, mandatory cash payments under the Reverse Charge Mechanism (RCM), and restrictions on transferring accumulated ITC between distinct entities. These issues have particularly impacted companies in their early stages and those with high capital outlays,” said sources.
