Easier GST input tax credit norms increase cash flow by up to 2%. Read the key points, why it matters and what businesses should watch next.
**GST ITC Changes Lift Cash Flow**
Recent changes to the goods and services tax input tax credit mechanism have released additional cash for businesses, with some manufacturing sectors gaining as much as 2% in cash flow, according to A2Z Taxcorp LLP. The benefit has lowered costs for these businesses, though the gains have not been passed on to consumers.
In the services sector, tax experts note that businesses have benefited from refunds on input tax credit for rentals. For IT and consulting firms, rentals can account for 10-15% of costs, making the refund meaningful for working capital.
**What Changed And When**
The reform has unfolded in stages. In September 2025, a rate rationalisation moved several mass consumption items, including all food products, into the 5% slab from the earlier 12% or 18%. The GST Council also permitted faster provisional refunds in inverted duty cases. At its meeting last month, the Council extended refunds to GST paid on input services, freeing up working capital and reducing overall costs.
**Why It Matters For Business**
For manufacturers, the change eases both the tax burden and working-capital pressure. One tax expert observed that whether the benefit reaches consumers is only part of the story; the larger significance lies in reducing friction for Indian manufacturing. As India widens its free trade agreement network and integrates further into global value chains, correcting inverted duty structures and rationalising customs tariffs will matter more for keeping domestic industry competitive. The reform direction, the expert added, aims at lower tax friction, unlocked working capital and greater room for businesses to invest, scale and compete. Ultimately, success depends on how industry deploys the released credit and how much value returns to consumers.
**What To Watch Next**
The impact varies by sector, and experts caution that this time there is no government nudge to pass benefits to consumers, unlike last year. Busines…
Services related to this update
Want this handled for you?
Get a free expert consultation and an exact quote within 24 hours.
Get free quote
