57th GST Council Meeting: Key ITC and Return Updates

Meeting held on 8 October 2026, New Delhi

The 57th GST Council meeting focused on process reforms, not rate changes. The main areas covered are input tax credit (ITC), returns, refunds, registration and notices.

This article explains the ITC and return changes in detail. Other changes are covered in short at the end.

Note: These are only recommendations. They will apply once the CGST Act, rules, notifications or circulars are amended or issued.

Key dates

Change	Applies to
Refund of ITC on input services (inverted duty structure)	ITC availed on or after 1 November 2026
Refund of ITC on capital goods (exports and inverted duty structure)	ITC availed on or after 1 April 2027; refund spread over 60 months
New method to correct tax liability and ITC in GSTR-3B	From the return for April 2027
Other changes	From the date notified

Part A: Input Tax Credit (ITC) updates

1. More expenses now eligible for ITC – section 17(5)

Section 17(5) lists expenses on which ITC is not allowed (blocked credit). The Council has recommended removing the block on the following:

• Outdoor catering
• Health insurance and life insurance
• Telecommunication towers
• Pipelines laid outside the factory
• Free samples
• Goods destroyed or written off on expiry, where the law requires it

Impact: GST paid on these expenses was a cost so far. Once the amendment is notified, it can be claimed as ITC. Pharma, FMCG, telecom and oil and gas companies, and employers paying group insurance premiums will benefit most.

2. Refund of ITC on input services and capital goods – section 54(3)

At present, refund of accumulated ITC is allowed only on inputs (goods) in inverted duty cases, and capital goods are excluded in export refunds. This is being widened:

Type of refund	Now	Proposed
Inverted duty structure (tax on inputs is higher than tax on output)	Refund of ITC on inputs only	Refund of ITC on inputs, input services and capital goods
Zero-rated supplies (exports / SEZ, without payment of tax)	Refund of ITC on inputs and input services	Capital goods also included

Applicable dates:

• Input services: ITC availed on or after 1 November 2026.
• Capital goods: ITC availed on or after 1 April 2027. Refund will be spread over 60 months (5 years).

Impact: Credit that is stuck in the ledger can now be converted into cash. From 1 November 2026, businesses with inverted duty should record ITC on input services separately so the refund claim is easy to prepare.

3. ITC for restaurants, hotels and gyms in the same line of business

Limited ITC will be allowed when a business buys the same type of service it supplies. This applies to:

• Restaurant and outdoor catering services
• Hotel accommodation with room tariff up to ₹7,500 per day
• Gym and fitness services

This is the same treatment already given to passenger transport, tour operators and car rental services.

4. Hearing before ITC is blocked – rule 86A

Under rule 86A, the officer can block ITC in the electronic credit ledger. Now, the taxpayer will be able to file an objection and get a personal hearing before the officer decides.

5. ITC time limit aligned with return due dates – sections 16, 37 and 39

The time limit for filing GSTR-1 and GSTR-3B will be matched with the last date for claiming ITC under section 16(4). This removes confusion where the two dates did not match.

6. Circulars to clarify ITC issues

Circulars will be issued on the following:

• Distribution of ITC through Input Service Distributor (ISD)
• ITC for banks, financial institutions and NBFCs that follow the 50% option under section 17(4)
• ITC on demonstration vehicles in certain cases
• Used car dealers under margin scheme: ITC is allowed on spares, repairs, rent, marketing and other expenses. ITC is not allowed only on the GST paid on the used vehicle itself.

Also, passenger transport and car rental services using electric vehicles get an option to pay GST at 5% with restricted ITC, where battery charging cost is included in the price.

Part B: Return-related updates

Many GST notices arise because figures do not match across GSTR-1, GSTR-2B and GSTR-3B. The Council has recommended the following changes to reduce such mismatches.

1. Legal backing for Invoice Management System (IMS) – rule 60(6A)

IMS allows the buyer to accept, reject or keep pending each purchase invoice on the portal. Only accepted invoices flow into GSTR-2B. A new rule will give IMS legal backing, with conditions, including a time limit for keeping a credit note pending.

Impact: Reviewing invoices on IMS every month should become a regular part of GST compliance.

2. New electronic statements and correction rules

Rule	What it does	Benefit
Rule 86C – Credit Reversal and Reclaim Statement	Records ITC reversed and later reclaimed in GSTR-3B	Avoids excess or short reclaim of reversed ITC
Rule 86D – RCM Statement	Records tax paid under reverse charge (RCM) and ITC taken on it	ITC on RCM will match the RCM tax paid
Rule 61(1A)	Allows correction of tax liability in GSTR-3B to match GSTR-1 / 1A / IFF	Short payment can be corrected before a notice is issued
Rule 61(1B)	Allows correction of ITC in GSTR-3B to match GSTR-2B	Excess or short ITC can be corrected before a notice is issued

3. Other return changes

• GSTR-1 / 1A / IFF: changes to make it easier to match with GSTR-3B.
• DRC-03 (voluntary payment): invoice details will have to be given for the amount paid.
• Circular on GSTR-3B: will explain how to report ITC and ITC reversal using IMS and the new statements.

4. When will this apply?

The new correction method will apply from the return for April 2027. Before that, the draft will be released for public comments. The Union Finance Minister can approve changes based on the feedback.

5. No late fee for small taxpayers if return is filed within the month

Taxpayers with turnover up to ₹5 crore in the previous year will not pay late fee for GSTR-3B (section 39(1) return), if it is filed by the end of the month in which it was due.

Example: GSTR-3B for September is due on 20 October. If it is filed by 31 October, no late fee will apply.

6. New optional scheme: Annual Return, Quarterly Payment (ARQP)

The Council approved in principle an optional scheme for taxpayers with turnover up to ₹5 crore who sell only to unregistered customers (B2C). They will file an annual return and pay tax quarterly. Details are awaited.

7. E-invoicing extended to RCM purchases and import of services

Businesses with turnover of ₹5 crore and above will have to issue e-invoices (self-invoices) for:

• Purchases from unregistered persons on which tax is paid under reverse charge
• Import of services

What businesses should do now

• List expenses covered by the section 17(5) relaxation and keep invoices ready.
• From 1 November 2026, track ITC on input services separately if you have an inverted duty structure.
• Reconcile GSTR-1, GSTR-2B and GSTR-3B every month and review invoices on IMS.
• Maintain a register of ITC reversed and reclaimed.
• Check that your accounting or ERP system can issue e-invoices for RCM and import of services.
• Track the draft on the return correction method and share feedback.

Part C: Other updates in short

Registration

• Circular and FAQs listing the documents needed for registration; drop-down options in REG-01.
• Changes in registration details (other than principal place of business) will be approved automatically.
• Cancellation application will be approved automatically once all returns are filed and dues are paid.
• Small sellers on e-commerce platforms can register in other States using the platform’s warehouse as their place of business (new rule 14B).

Refunds

• Refund of excess balance in cash ledger will be approved automatically.
• Acknowledgement time reduced from 15 to 10 days; deemed acknowledgement after that.
• 90% of refund for exports and inverted duty to be sanctioned automatically on a provisional basis.
• No need to upload scanned documents with RFD-01 for these refunds.
• Limit of 1.5 times on export turnover of goods in rule 89(4)(C) removed.
• ₹1,000 minimum refund limit to apply on total of CGST, SGST and IGST.

Notices, penalty and appeals

• No show cause notice if tax involved is less than ₹10,000. Pending notices and appeals below this amount will be decided as if this limit already applied.
• Penalty reduced to 5% in non-fraud cases if tax and interest are paid within 30 days (section 73) or 60 days (section 74A) of the order.
• Minimum penalty of ₹10,000 removed in non-fraud cases.
• General penalty under section 125 reduced from ₹25,000 to ₹10,000.
• Pre-deposit for appeal against penalty-only orders capped at ₹40 crore.

Exports

• Services supplied to own foreign branch or office can qualify as export of services.
• Supply to an overseas buyer with delivery in SEZ/FTWZ will be treated as supply to SEZ/FTWZ.

Arrest, prosecution and e-way bill

• Power to arrest under GST to be removed (section 69 omitted).
• Prosecution limit raised from ₹1 crore to ₹5 crore.
• Vehicles can be stopped only on specific information, with approval of a Joint Commissioner or higher officer, and only in the State of the supplier or buyer. No checking in transit States unless there is no e-way bill or document.

Other changes

• Transfer of intellectual property rights (IPR) will always be treated as supply of services.
• Rule 96(10) omitted from 23 October 2017, as per Supreme Court decision.
• GST Appellate Tribunal provisions aligned with the Tribunals Reforms Act, 2026.

Rate clarifications

• Goods: NIL rate on psyllium (isabgol) seeds; toy entries in the rate schedule cover all toys under heading 9503; seaweed-based bio-stimulants treated as fertilisers; RCM on plastic, e-waste, tyre scrap and used cooking oil bought from unregistered persons, and 2% TDS on B2B sale of such scrap.
• Services: 5% GST without ITC on delivery services through e-commerce platforms; exemption for storage of sowing seeds, coffee curing and helicopter seat-sharing in the North-East; self-certification for R&D exemption.

Conclusion

The ITC changes allow more credit and faster refunds. The return changes, from April 2027, will help correct mismatches before notices are issued. Businesses that keep their reconciliations and records up to date will be able to use these benefits easily once they are notified.

For help on how these changes affect your business, please get in touch with us.

Source: PIB press release on recommendations of the 57th GST Council meeting, 8 October 2026. This article is for general information only. Provisions will apply as and when notified.