Author: Ashwarya Sharma, Advocate | Co-Founder & Legal Head, RB LawCorp
Date: 01/04/2026
Introduction: From Structural Reform to Practical Efficiency
The enactment of the Finance Act, 2026 marks another step in the steady evolution of India’s GST regime. Unlike the pre-GST era, where Union Budgets served as the primary vehicle for indirect tax reforms, the GST framework has significantly altered this dynamic. Today, the GST Council acts as the principal forum for deliberation and consensus-building, with Parliament largely formalising decisions that have already undergone extensive consultation.
In this context, the legislative process under GST increasingly resembles the final stage of a well-considered policy exercise. The amendments introduced this year, while limited in number, are notable for their precision and focus on resolving practical issues faced by businesses.
This article examines the key changes introduced by the Finance Act, 2026 and their implications for GST compliance, litigation and business operations.
A. Post-Supply Discounts: Aligning Law with Commercial Reality
One of the most significant reforms relates to the treatment of post-supply discounts. In commercial practice, businesses frequently operate with dynamic pricing models involving rebates, incentives and turnover-based discounts. However, the earlier legal framework imposed rigid conditions requiring such discounts to be pre-agreed and linked to specific invoices.
This created substantial compliance challenges, particularly in high-volume sectors such as FMCG, cement and automobiles, where discounts are often determined post facto based on performance or market conditions.
Recognising these practical difficulties, the Finance Act relaxes the strict requirements of pre-supply agreements and invoice-level linkage. Discounts can now be excluded from the taxable value subject to reasonable safeguards, including proper documentation and corresponding reversal of input tax credit.
Impact:
This change reduces compliance burden and aligns GST valuation provisions with commercial realities, while also addressing a significant source of litigation.
B. Inverted Duty Structure: Unlocking Working Capital
The issue of inverted duty structure continues to be a major concern under GST. While rate rationalisation has reduced output tax rates in several sectors, the mismatch between input and output tax rates has led to accumulation of unutilised input tax credit.
Industries such as food processing illustrate this imbalance, where inputs and services attract higher GST rates compared to finished goods. This results in working capital being locked in the electronic credit ledger.
B.1 Statutory Constraints
Although Section 54(3) permits refunds in inverted duty cases, the existing framework restricts refunds primarily to inputs, excluding input services and capital goods. Additionally, delays in processing refunds further exacerbate liquidity challenges.
B.2 Provisional Refund Mechanism
A key reform introduced by the Finance Act is the extension of the 90% provisional refund mechanism—previously applicable to exports—to inverted duty structure cases. This system-driven, risk-based approach allows faster release of funds while maintaining safeguards through subsequent verification.
Impact:
This measure is expected to significantly improve liquidity, reduce refund timelines and enhance ease of doing business.
C. Intermediary Services: Restoring Export Parity
Another important amendment addresses the long-standing issue relating to intermediary services. Previously, under Section 13(8)(b) of the IGST Act, such services were deemed to be supplied in India, even when provided to overseas clients, thereby denying export benefits.
The Finance Act removes this anomaly by aligning intermediary services with the general rule, where the place of supply is determined by the location of the recipient.
Impact:
This restores export status for such services, enabling zero-rating and refund of input tax credit, while also improving India’s competitiveness in service exports.
D. Removal of Refund Threshold: Relief for Small Businesses
The removal of the ₹1,000 minimum threshold for GST refunds addresses a long-standing concern, particularly for MSMEs and small exporters engaged in low-value transactions.
Previously, such small claims were not processed, leading to accumulation of unrecoverable credits over time.
Impact:
This change improves liquidity, supports small businesses and reinforces the principle that taxes should not become a cost.
E. Advance Ruling Appeals: Ensuring Continuity
To address delays in operationalising the national appellate authority for advance rulings, an interim mechanism has been introduced allowing appeals to be handled through GSTAT.
Impact:
This ensures continuity in the advance ruling framework and preserves certainty in tax positions.
F. Conclusion: Incremental Changes, Meaningful Impact
The Finance Act, 2026 reflects a clear shift in GST policy—from large structural reforms to resolving everyday operational challenges. The focus is on addressing friction points that impact compliance, working capital and litigation.
While these changes may not appear transformative at first glance, their cumulative impact on business efficiency and tax administration is substantial.
However, structural issues such as the inverted duty framework continue to require sustained policy attention. The long-term success of GST will depend on the system’s ability to continuously adapt to business realities.
G. Note of Caution
Although these amendments have been enacted through the Finance Act, their implementation will require corresponding changes in State GST laws and issuance of notifications. Based on past trends, businesses may expect these provisions to become fully operational over the coming months.
Conclusion: Toward a More Workable GST Framework
The evolution of GST is increasingly characterised by refinement rather than overhaul. By addressing practical challenges and improving operational efficiency, the Finance Act, 2026 moves the system closer to its foundational objective of seamless credit flow and tax neutrality.
If this approach continues, GST has the potential to evolve into a system that is not only legally robust but also practically effective in the day-to-day functioning of businesses.
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(The author is a practicing advocate, Co-Founder and Legal Head of RB LawCorp.
He specializes in GST law. Suggestions or queries can be directed to
ashsharma@rblawcorp.in. The views expressed in this article are strictly
personal.)
