Officials explore input tax credit fixes for smooth GST transition

Suggest allowing unused ITC for SGST payments, Customs duty offsets, or tradable scrips

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In an inter-ministerial meeting chaired by Cabinet Secretary TV Somanathan ahead of the implementation of goods and services tax (GST) reforms on September 22, senior officials from various departments on Monday proposed allowing unutilised input tax credit (ITC) to be used for paying state GST (SGST), offsetting Customs duty, or converting it into tradable scrips, as possible solutions to address transition issues.

The meeting came at a time when many sectors have raised concerns over compensationcess, accumulated input tax credit, and an inverted duty structure.

Following the recent GST rate rationalisation exercise, many products, including fast-moving consumer goods (FMCG), food items, and pharmaceuticals, will attract 5 per cent GST, while certain inputs are taxed at 18 per cent, including services used. This is expected to create an inverted duty structure, leaving a significant portion of ITC unutilised, and thus affecting working capital and constraining operational flexibility for smaller manufacturers.