CA Ankita Hudiya
Abstract
Union Budget 2026–27 proposes certain targeted amendments under GST. The changes are not rate-oriented but structural in nature and largely focus on resolving long-pending issues faced by taxpayers, particularly service exporters, refund applicants and businesses dealing with post-supply discounts. This article discusses the key proposals and their likely practical impact from a professional and compliance perspective.
Introduction
After more than eight years of implementation, GST has moved from a transition phase into a relatively settled regime. The initial years saw frequent changes in rates, returns and procedures. However, the challenges that persisted were not so much rate-related but interpretational and procedural.
In day-to-day practice, professionals have regularly faced issues such as refunds getting blocked for long periods, contradictory advance rulings in different States, and audit objections on technical grounds even where the transaction itself was genuine. Over time, these became larger compliance problems than the tax liability itself.
Budget 2026 appears to address some of these practical concerns. The proposals do not overhaul GST but attempt to correct specific provisions which were consistently creating litigation or administrative difficulty. The amendments relating to intermediary services, refunds and post-supply discounts are particularly relevant for professionals handling assessments and departmental audits.
1. Intermediary Services – Removal of Place of Supply Restriction
The Budget proposes omission of Section 13(8)(b) of the IGST Act, 2017. Earlier, the place of supply of intermediary services was deemed to be the location of the supplier.
Because of this provision, even when services were provided to a foreign client and payment was received in foreign exchange, the transaction was treated as taxable in India and export benefits were denied.
Practical Impact
- Intermediary services will now follow the general place of supply rule (location of recipient)
- Such services will qualify as export of services and become zero-rated
- Refund of ITC/IGST will become available
- Import of such services will be taxable under reverse charge
This issue alone was responsible for a large number of writ petitions before various High Courts. In assessments also, officers routinely denied export treatment citing Section 13(8)(b). From a litigation perspective, this is probably the most important GST change in this Budget and should substantially reduce disputes for service exporters, BPOs and sourcing agents.
2. Refund Mechanism – Attempt to Ease Working Capital Blockage
(a) Inverted Duty Structure
The Budget proposes allowing provisional refund up to 90% in inverted duty cases.
At present, even genuine refund claims remain pending for months due to verification procedures. For manufacturing clients especially, accumulation of ITC has been a recurring working capital issue. The proposed provisional refund should provide immediate liquidity, subject of course to implementation at the field level.
(b) Removal of ₹1,000 Export Refund Threshold
The minimum threshold of ₹1,000 for refund of IGST paid on exports has been removed.
Though the amount appears small, practically many small exporters faced rejection or delay because claims below the threshold were not processed. This amendment removes an unnecessary procedural hurdle.
Overall, the change indicates that the administration is trying to treat refunds as part of the system rather than as an exception.
3. Post-Supply Discounts – Relief from Technical Disallowances
Post-supply discounts have frequently been questioned during departmental audits. Credit notes were often rejected on the ground that the discount was neither pre-agreed nor clearly linked to specific invoices.
The Budget now proposes rationalisation of these provisions and permits recognition of such discounts, subject to reversal of corresponding ITC wherever required.
Practically, this should reduce disputes in sectors like FMCG, pharmaceuticals and distribution trade, where year-end incentives, secondary discounts and turnover-based schemes are routine business practice. In many cases the objection was largely technical, as there was no real revenue loss to the exchequer.
4. Advance Ruling – Interim Appellate Relief
Another practical difficulty under GST has been the issuance of conflicting Advance Rulings by different States on similar issues. In several cases, once an adverse ruling was passed, the taxpayer had very limited recourse and was compelled to move to writ litigation.
The Budget now proposes a temporary appellate arrangement till the National Appellate Authority becomes operational.
The amendment provides relief to taxpayers who were earlier bound by adverse advance rulings without an effective appellate remedy, forcing them to approach High Courts even for interpretational issues.
This step is important in practice, as many businesses were hesitant to seek advance rulings due to the risk of being locked into an unfavorable interpretation without a proper appeal mechanism.
5. Procedural and Valuation Clarifications
Certain clarifications have also been proposed in valuation and procedure. These appear aimed at reducing interpretational disputes.
From an assessment perspective, a large number of GST notices currently arise from documentation gaps rather than tax evasion. Any clarification which reduces interpretational variation between jurisdictions should reduce avoidable litigation.
6. No Change in GST Rates
No major change in GST rates or slabs has been proposed in this Budget.
This is important. Frequent rate changes in earlier years created compliance difficulty in accounting systems, pricing and contracts. Stability in rates allows businesses to plan without repeated system modifications.
Conclusion
Budget 2026 does not introduce dramatic GST changes, but it addresses some long-standing friction points in the law. The correction relating to intermediary services, improvement in refund processing and relaxation in post-supply discount provisions are particularly relevant from a compliance standpoint.
If implemented properly at the departmental level, these amendments should reduce routine audit objections and litigation. The emphasis seems to be shifting from technical interpretation towards practical administration, which is necessary for a mature tax system.
The real impact will, however, depend on field implementation and corresponding circulars. Professionals may need to monitor notifications and procedural instructions that follow.
The views expressed in this article are based on the author’s professional understanding and interpretation of the provisions as on date and are intended for general academic discussion. They should not be construed as legal or professional advice. The applicability of the law may vary depending upon the specific facts and circumstances of each case and readers are advised to examine the relevant provisions and seek appropriate professional consultation before taking any action. The author shall not be responsible for any consequences arising from reliance placed on the above discussion
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Author: CA Ankita Hudiya (Chartered Accountant), Noida | Email: caankita@scaa.in
