By CA Surekha S Ahuja
From tax rates to tax friction: ITC, RCM, refunds, registration, exports, disputes and enforcement will decide the next phase of GST.
By CA Surekha S Ahuja
6 October 2026
The rate is what a business pays the Government. The cost of compliance is what it pays to prove that it paid.
The 57th GST Council meeting is scheduled for 8 October 2026, after more than thirteen months. The reported focus is not merely on rates, but on the machinery of GST — registration, returns, input tax credit, refunds, disputes and enforcement.
That is where the next GST reform needs to go.
After almost a decade of GST, the bigger question for a compliant business is no longer simply:
How much GST do I pay?
It is:
How much does GST cost me to comply with, reconcile, finance and defend?
GST 1.0 built the tax architecture.
GST 2.0 simplified the rate structure.
The next stage has to fix the operating architecture.
Same tax. Different cost.
Consider two businesses with identical turnover, identical GST liability and identical tax rates.
One receives its ITC smoothly, obtains refunds quickly, completes registration without repeated queries and closes its reconciliations through its accounting system.
The other has RCM transactions requiring separate identification, ITC blocked or disputed during departmental audit, refunds consuming working capital, repeated documentation queries and management time spent reconciling books with multiple GST records.
The tax may be identical. The business cost is not.
The statute sees the tax.
The profit and loss account sees the friction.
What has changed — and what is still open?
This distinction matters.
Several GST reforms are already part of the legal framework. Other issues are proposals, industry representations or reported areas of consideration. They should not be presented as though they are already law.
| Area | What has changed | What still needs attention |
|---|---|---|
| ITC | Rule 37A provides for reversal and subsequent re-availment in specified supplier-default situations | The wider question remains: how should a genuine recipient be protected from supplier-side default? |
| RCM & ITC | The recipient pays RCM and, where otherwise eligible, may claim ITC | Classification, documentation, eligibility and audit disputes can still arise over the same transaction |
| Refunds | Risk-based provisional refund mechanisms have improved speed in specified cases | Blocked credit and processing time can continue to impose working-capital costs |
| Registration | Risk-based and simplified registration mechanisms have been introduced | Genuine low-risk businesses should face proportionate verification and minimal delay |
| Returns | GSTR-1A provides a mechanism for specified corrections before GSTR-3B | Businesses still reconcile data across multiple systems and periods |
| Services exports | Changes have addressed some intermediary-service issues | Place of supply, overseas structures, realisation and documentation can still create uncertainty |
| Disputes & enforcement | Enforcement and prosecution provisions have already been rationalised in certain areas | The system needs clearer differentiation between fraud, interpretation, reconciliation and procedural default |
The principle is simple: a reported proposal becomes a compliance requirement only when it is legally implemented.
The GST pain businesses know: RCM paid, ITC still disputed
One of the most practical gaps in GST compliance is the treatment of reverse charge and the corresponding input tax credit.
RCM itself is straightforward in concept.
The recipient identifies the transaction, determines the liability and pays GST instead of the supplier.
But the compliance chain does not end with payment.
The business must establish:
Why RCM applies → taxable value → rate → time of supply → tax payment → reporting → ITC eligibility
During departmental audit, the same transaction may then be examined again from the ITC side.
Was the expenditure genuinely for business?
Is the credit blocked under section 17(5)?
Is proportionate reversal required?
Was the credit taken within the permitted time?
Is the documentation adequate?
Has the transaction been correctly classified?
Has the credit already been reversed or duplicated?
This can lead to an uncomfortable situation:
RCM tax has been paid, but the corresponding ITC is still questioned.
That does not necessarily mean there has been a revenue loss. The dispute may concern classification, documentation, timing, apportionment or eligibility.
RCM needs a complete audit trail
For every material RCM category, the system should be capable of answering five questions:
Why was RCM applicable?
What was the taxable value?
When was tax payable?
How was it paid?
Why is the corresponding ITC eligible?
Today, the answers may be spread across agreements, invoices, expense ledgers, RCM workings, payment records, GSTR-3B and the electronic credit ledger.
That fragmentation creates audit risk.
The better architecture is:
Transaction → RCM identification → tax payment → eligible ITC → reconciliation → audit trail
rather than requiring the taxpayer to reconstruct the entire chain years later during departmental audit.
“Ineligible ITC” is not one category
This is another area where GST 2.0 needs to move beyond mechanical matching.
An ITC disputed during audit may arise because:
the credit is specifically blocked under section 17(5);
expenditure has business and non-business use;
common credit requires reversal;
exempt supplies require proportionate reversal;
the statutory time limit is questioned;
invoice or receipt conditions are questioned;
supplier-side reporting creates a reconciliation issue;
the department adopts a different classification;
place-of-supply conditions affect eligibility;
credit is duplicated or already reversed; or
documentation does not sufficiently establish business purpose.
These are different legal and factual questions.
They should not automatically become one number called “wrong ITC.”
A clearly blocked personal expense is not the same as an RCM credit where tax has already been paid to the Government.
A duplicate credit is not the same as a genuine interpretational dispute.
A small reconciliation difference is not the same as structured fraudulent credit.
The response should therefore be proportionate to the nature of the risk.
Seven tests for the next stage of GST
1. ITC: from entitlement to usable and defensible credit
The real question is not merely how much ITC a business is entitled to claim.
It is:
How much credit is available, usable, correctly classified, reconciled and capable of surviving departmental audit?
Supplier default, RCM classification, section 17(5), common-credit reversal, place-of-supply issues, time limits and documentation disputes are different problems.
Test: How much ITC is blocked, disputed or under audit — and how much management time and financing cost does it consume?
2. Refunds: measure working-capital days
For an exporter, refund is working capital.
Every additional day between export, application, sanction and receipt has a financing cost.
Test: How many days does it take for export-related credit to reach the bank, and how much credit remains blocked?
3. Registration: prove the business once
The ideal sequence is:
Data verification → risk assessment → registration → start business
A genuine low-risk business should not experience the same friction as a high-risk applicant.
Test: How many days from application to the first legitimate invoice?
4. Returns: accounting output, not monthly reconstruction
GST returns should increasingly be an output of the accounting system rather than a monthly exercise in making multiple databases agree.
Test: How many people and hours are required simply to make GST data agree?
5. Services exports: ambiguity should not destroy export economics
India increasingly exports software, SaaS, consulting, engineering, professional, financial and specialised services.
Classification, place of supply, overseas structures, realisation and documentation can all affect export treatment.
Test: Can a procedural ambiguity convert a genuine export into a tax cost?
6. Disputes: proportionate treatment
Not every GST dispute represents evasion.
Some arise from interpretation, reconciliation, classification, documentation or small procedural defaults.
A minor mismatch should not necessarily travel through the same machinery as organised fraudulent credit.
Test: Does the cost of contesting a small demand exceed the demand itself?
7. Enforcement: distinguish error from fraud
Strong enforcement is necessary.
But credible enforcement also requires the system to distinguish:
honest mistake → correctable default → serious non-compliance → deliberate fraud
Test: Can the taxpayer understand where compliance risk ends and serious enforcement risk begins?
From officer-driven to system-driven GST
The next generation of GST should increasingly work like this:
Transaction
↓
System captures data
↓
Databases reconcile
↓
Low-risk transactions process automatically
↓
Exceptions are identified
↓
Human intervention focuses on genuine risk
This is particularly important for RCM and ITC.
The taxpayer should not repeatedly prove the same transaction to different parts of the system when the underlying data is already available.
What businesses should measure now
Businesses should move from measuring GST compliance to measuring GST friction.
| Area | Old question | Better question |
|---|---|---|
| ITC | How much credit was claimed? | How much is usable, blocked or disputed? |
| RCM | Was RCM paid? | Can the complete RCM-to-ITC trail be defended? |
| Refund | Was the refund filed? | How many working-capital days are blocked? |
| Registration | Was GSTIN obtained? | How quickly could the business start invoicing? |
| Returns | Were returns filed? | How much manual effort is required? |
| Exports | Was the structure documented? | Will the structure survive scrutiny? |
| Litigation | How much is disputed? | How much money and management time is consumed? |
| Compliance | What was paid? | What is the total cost of staying compliant? |
The eight numbers every business should track
Before the next GST reform is announced, management should quantify:
ITC blocked or disputed — with reasons.
RCM exposure — category-wise, including corresponding ITC.
ITC by source — inputs, input services and capital goods.
Refund cycle time — export to actual receipt.
Registration friction — queries, documents and delay.
Reconciliation effort — people and hours spent each period.
GST litigation inventory — substantive disputes versus procedural or reconciliation matters.
Total GST compliance cost — staff time, professional fees, interest, blocked credit, financing cost and management time.
The eighth number is the one most businesses never calculate. It is also the number against which GST 2.0 should ultimately be measured.
CA S. Ahuja Perspective
The first generation of GST asked businesses to adapt to the tax system.
The next generation should make the system adapt better to legitimate business.
That does not mean weaker tax administration.
It means better tax administration:
less blocked capital;
faster legitimate refunds;
fewer repetitive reconciliations;
clearer treatment of RCM and ITC;
proportionate treatment of genuine errors;
less avoidable litigation; and
more targeted enforcement against deliberate fraud.
The real test of GST 2.0 is whether a compliant business can:
pay the right tax → claim the right credit → receive its legitimate refund → correct an honest mistake → and defend its position without disproportionate cost, time and uncertainty.
If that happens, GST reform has moved beyond rates into business efficiency.
If the tax is right but the cost of proving it remains high, the reform is incomplete.
A rate cut lowers the price of a product.
A compliance reform lowers the cost of doing business.
Important: The 57th GST Council meeting is scheduled for 8 October 2026. Reported proposals and industry representations should not be treated as law unless and until implemented through the appropriate statutory or administrative instrument.
