GST Rules Amended to Remove Turnover Cap and Expand Net ITC Calculations

Recent regulatory updates have formally amended Rule 89(4) and Rule 89(5) under the Goods and Services Tax framework regarding unutilised input tax credit refunds. Most notably, the previous restriction capping refunds at 1.5 times the turnover of zero-rated supply of goods has been completely removed. Furthermore, the computation of Net ITC is expanded to include input services effective from 01.11.2026, followed by the inclusion of capital goods spread over 60 months starting from 01.04.2027.

Under standard taxation mechanics, input tax credit represents the tax paid by a business on its purchases that can be offset against tax liability on outward supplies. When businesses engage in zero-rated supplies such as exports, accumulated credit often remains unutilised, prompting refund mechanisms designed to maintain export competitiveness. Previously, restrictive caps and narrow definitions limited the exact pool of eligible credits that exporters could claim. The inclusion of input services and capital goods alters the quantum of eligible refunds, addressing long-standing industry cash flow concerns by broadening the operational scope of creditable expenses.

Tax professionals and corporate finance teams should review existing ERP configurations and accounting methodologies to ensure smooth incorporation of input services from 01.11.2026 and capital goods amortization from 01.04.2027. Businesses must maintain meticulous documentation supporting zero-rated turnovers and credit segregations to avoid departmental disputes during refund audits. Bottom line: Accurate tracking of these phased timelines protects working capital and ensures seamless statutory compliance for exporting entities.