Union Budget 2026 introduces targeted GST amendments to fix structural gaps, ease compliance, and improve liquidity while strengthening dispute resolution. A landmark change omits Section 13(8)(b) of the IGST Act, shifting the place of supply for intermediary services to the recipient-based default rule, thereby restoring export benefits for Indian intermediaries and aligning GST with destination-based taxation—though without retrospective relief. Valuation rules are simplified by allowing post-sale discounts to be excluded from taxable value without a pre-supply agreement, subject to credit notes and ITC reversal, with corresponding alignment in credit note provisions. Cash-flow relief is enhanced by extending provisional refunds (up to 90%) to inverted duty structure cases, crucial amid GST 2.0 rate rationalisation, though timely acknowledgments and reduced discretion remain key to impact. Finally, an interim appellate mechanism for advance rulings addresses a long-standing vacuum pending the national authority. Overall, the proposals are business-friendly and progressive, with further gains possible through retrospective clarity and streamlined refund processing. The key indirect tax proposals are analysed below:
1. Place of Supply for Intermediary Services Shifted to Recipient-Based Rule
Clause (b) of sub-section (8) of Section 13 of the IGST Act 2017, which earlier prescribed the place of supply for intermediary services as the location of the supplier, has been omitted.
With this omission, the place of supply for intermediary services will now be governed by the default rule under Section 13(2) of the IGST Act, i.e., the location of the recipient of services. This amendment, recommended by the 56th GST Council Meeting, marks a fundamental shift in the taxation of intermediary services and aligns GST with its destination-based principle.
Key Implications
- Intermediary services provided by Indian service providers to overseas recipients will now qualify as export of services, making them eligible for zero-rating and refund benefits.
- This change enhances the global competitiveness of Indian intermediaries, reduces the cost of doing business, and is expected to promote foreign exchange inflows.
- Conversely, intermediary services supplied by overseas service providers to Indian recipients will qualify as import of services under Section 2(11) of the IGST Act, attracting IGST under the Reverse Charge Mechanism (RCM).
Critical Observation
The omission addresses a long-standing anomaly under GST, where export benefits were denied to Indian intermediaries despite services being consumed outside India. However, the amendment has not been given retrospective effect, which may result in:
- Continued denial of export benefits for past periods (post 1 July 2017).
- Discriminatory treatment between similarly placed taxpayers for past and future periods, potentially violating Article 14 of the Constitution of India.
Given that the amendment removes a structural inconsistency rather than granting a new concession, retrospective application would have significantly reduced pending litigation and given full effect to the destination-based character of GST.
2. Post-Sale Discounts Allowed Without Mandatory Pre-Supply Agreement
Section 15(3) of the CGST Act has been amended to remove the requirement of linking post-sale discounts or incentives to a pre-existing agreement and specific invoices.
Under the amended provision:
- Post-supply discounts can be excluded from the value of supply subject to issuance of a credit note under Section 34, and
- Reversal of corresponding ITC by the recipient.
Pre-Amendment Issues
Earlier, Section 15(3)(b) required:
- Existence of an agreement at or before the time of supply;
- Specific linkage of discounts to relevant invoices; and
- Reversal of ITC by the recipient.
These conditions created significant practical difficulties, especially where discounts were linked to sales targets, turnover milestones, or performance-based incentives. Further, there was no effective mechanism for suppliers to verify ITC reversal by recipients.
Although CBIC attempted to bridge this gap through Circular No. 212/6/2024-GST, requiring CA/CMA certification for ITC reversal, the circular was later withdrawn vide Circular No. 253/10/2025-GST, reintroducing uncertainty.
Impact of Amendment
The amendment, pursuant to the 56th Meeting of GST Council, significantly:
- Reduces compliance burden,
- Aligns GST valuation provisions with commercial realities, and
- Brings long-awaited clarity on treatment of post-sale incentives.
3. Credit Note Provisions Aligned with Valuation Rules
Section 34 of the CGST Act has been amended to expressly include post-supply discounts referred to in amended Section 15(3)(b) as a valid ground for issuance of credit notes.
This amendment brings statutory alignment between valuation provisions and credit note mechanism, eliminating interpretational conflicts that existed earlier.
4. Provisional Refund Extended to Inverted Duty Structure (IDS)
Section 54(6) of the CGST Act has been amended to extend the provisional refund facility (up to 90%)—earlier available only for zero-rated supplies—to refunds arising out of Inverted Duty Structure (IDS).
- Provisional refund to be granted within 7 days from the date of acknowledgment, based on system-driven risk evaluation.
- CBIC Instruction No. 06/2025-GST dated 03.10.2025 had already operationalised this benefit for IDS refunds filed on or after 01.10.2025.
Significance
This amendment is particularly relevant in the context of the GST 2.0 rate rationalisation, which has led to accumulation of ITC in sectors such as:
- Paper and paper products,
- Corrugated boxes,
- Packaging and printing industries.
By extending provisional refunds to IDS cases, the amendment provides much-needed working capital relief.
Practical Concerns
- Delays in issuance of acknowledgment under Rule 90 often postpone provisional refunds.
- Proviso to Rule 91(2) continues to vest discretion with the proper officer, which may dilute the intended benefit.
The real success of this amendment will depend on strict adherence to timelines and system-driven processing, with minimal discretionary intervention.
5. Interim Mechanism for Appeals Against Advance Rulings
A new sub-section (1A) has been inserted in Section 101A of the CGST Act, empowering the Central Government, on GST Council recommendation, to authorise any existing authority or tribunal to hear appeals against advance rulings under Section 101B, pending constitution of the National Appellate Authority for Advance Ruling (NAAAR).
- Consequentially, sub-sections (2) to (13) of Section 101A will not apply.
- References to NAAAR will be construed as references to the authorised authority.
Impact
- Addresses the long-standing vacuum in the appellate advance ruling mechanism.
- Brings certainty and continuity in advance ruling jurisprudence.
- Expected to reduce conflicting rulings and prolonged litigation.
This provision will be effective from 1 April 2026, though its success will depend on timely notification and clear procedural guidelines.
Conclusion
The indirect tax proposals in Budget 2026 reflect a conscious move towards:
- Destination-based taxation,
- Business-friendly compliance framework,
- Improved liquidity for taxpayers, and
- Strengthened dispute resolution mechanisms.
While the reforms are largely progressive, retrospective relief in intermediary services and procedural streamlining in refunds would further enhance taxpayer confidence and reduce litigation.
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