The GST Council is expected to consider reforms to input tax credit (ITC) at its October 7 meeting. The move could benefit sectors such as textiles, pharmaceuticals, footwear, fertilisers, renewable energy and electric vehicles.

The key issue is the GST inverted duty structure, where the tax rate on inputs is higher than the rate on finished products. As a result, businesses accumulate unused ITC, which can remain locked for long periods.

Textile Sector Faces ITC Accumulation

The September 2025 GST rate changes reduced the number of tax slabs from four to two. While the reform simplified the tax system, experts said it also widened inverted duty structures in some sectors.

In several industries, input services and capital goods attract GST at 18%, while some outward supplies are taxed at 5%. This creates a mismatch and leads to ITC accumulation.

For textile companies, the locked credit can increase working capital requirements. It can also add to costs and affect manufacturing competitiveness.

Experts Seek Faster GST Refunds

Experts have called for changes to the refund mechanism. They also want the government to address the GST inverted duty structure at its source.

Grant Thornton Bharat partner Manoj Mishra said the current refund framework does not fully cover credit arising from input services and capital expenditure. This can result in significant working capital being blocked.

EY India’s Bipin Sapra said allowing refunds for eligible ITC linked to input services and capital goods could improve liquidity and reduce tax cascading.

GST Reforms Could Support Manufacturers

The GST Council may consider a two-part approach. First, it could review sectors with persistent rate inversions. Second, it could examine refunds for genuine accumulated ITC.

Such measures could help businesses release blocked working capital. They may also improve credit utilisation and support domestic manufacturing.

For the textile industry, resolving the GST inverted duty structure could help reduce the financial pressure created by accumulated tax credits.