India’s GST rate changes took effect on September 22, 2025, and an Economic Times commentary says the rate rationalisation helped revive demand. But businesses can still have GST input tax credit (ITC) on their books and need to pay tax in cash: rules and the structure of GST can prevent a credit from being used for a particular liability or in the state where it is needed.
Ahead of a GST Council meeting scheduled for October 7, 2026, industry sought two distinct changes: allowing accumulated ITC to pay reverse-charge liabilities, and allowing credit in one state registration to offset a liability in another. As of October 3, 2026, these were reported proposals, not approved changes.
What GST 2.0 changed—and what the demand evidence shows
The GST Council Secretariat’s September 2025 newsletter says the rate changes took effect on September 22, 2025. The Economic Times commentary links rate compression and rationalisation to a recovery in demand.
The commentary also reports that net GST revenue collections for the Centre and states grew 9.2% in April–July 2026 compared with April–July FY26. That is the commentary’s reported figure; it was not independently checked against a primary collections release. It is evidence of reported revenue growth, not by itself proof that rate changes caused a demand recovery.
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Why a business can have ITC and still owe cash
Input tax credit is intended to let an eligible business use GST paid on inputs to offset GST due on later supplies. When credit cannot be claimed, used for a particular liability, moved to where the liability arises, or refunded, it may remain unused rather than reduce the business’s cash tax payments.
The barriers described in the commentary fall into three broad groups:
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- Legal limits: rules can restrict which liabilities a credit may offset.
- Structural gaps: some supplies are outside GST, while rate inversion—where tax on inputs is higher than tax on outputs—can contribute to accumulated credit.
- Operational limits: credit held by a registration in one state cannot simply be transferred to a separate registration in another state.
The GST Council’s 53rd-meeting materials provide historical context on accumulated credit and inverted rates. They do not establish the rules in force for the October 2026 meeting or show that a later proposal was accepted.
Two separate industry requests
Business Standard reported two proposals ahead of the Council meeting scheduled for October 7, 2026. They address different obstacles and should not be treated as one change.
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| Proposal | Credit and liability involved | What the reported change would address | Who made the request and status |
|---|---|---|---|
| Use ITC for reverse-charge GST | Accumulated credit would be used against a reverse-charge liability. | It would change the permitted payment method for that liability, which businesses currently pay in cash. | CII and ASSOCHAM were reported as asking for the change. It was a proposal, not an approved rule. Business Standard, September 23, 2026. |
| Offset credit across state registrations | Credit held by one state unit would be used against a tax liability of another state unit of the same company. | It would address the mismatch between where credit sits and where tax is due, raising questions about moving or offsetting credit across registrations. | Business Standard attributed this request generally to industry sources; it did not name a final design or draft legal language. It was not an approved change. Business Standard, September 8, 2026. |
What businesses should take from the proposals
The requests point to two different cash-flow problems. A reverse-charge liability may be payable in cash despite a business having accumulated ITC; a separate state registration may owe tax while credit remains with another unit. Neither request, as reported, supplies the detailed legal or administrative design needed to determine how it would work.
Until an official change is announced, businesses should treat existing payment and credit rules as governing their filings, rather than assuming the requested offsets are available. The meeting was still in the future on October 3, 2026, so its outcome cannot be stated here as fact.
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