Before the GST Council even gets to its technical agenda on September 12, opposition-ruled states are expected to arrive at the meeting with a demand that has been building since the rate rationalisation decisions of September 2025. States including Telangana, Karnataka, Himachal Pradesh and Punjab are likely to press the Centre to compensate them for revenue losses that followed those rate cuts, setting up a politically charged opening to what is also a substantively important meeting for Indian businesses.
This will be the first Council meeting since last year’s rate rationalisation, making it a natural moment for states to formally register the fiscal impact they have absorbed since those changes took effect.
Why the Compensation Demand Has Come to a Head
The GST compensation mechanism that originally protected states from revenue shortfalls in the regime’s early years expired in 2022. Since then, states have been absorbing revenue fluctuations without that buffer. When the Council takes rate rationalisation decisions that reduce collections on specific goods and services, the losses land directly on state finances with no compensatory arrangement in place.
Opposition-governed states argue that centrally driven rate decisions that reduce their revenue should come with some form of compensation from the Centre, a position that reflects a broader tension in the federal architecture of GST between the Centre’s coordination role and states’ fiscal autonomy. Telangana, Karnataka, Himachal Pradesh and Punjab are expected to make this case forcefully at the September 12 meeting.
Whether the Centre responds with a concrete mechanism or the demand simply gets registered and deferred will shape the political temperature of the rest of the meeting.
The ITC Refund Automation That Could Change Business Operations
While the political debate over compensation plays out, the Council also has on its agenda a proposal that could meaningfully improve cash flow for a large section of Indian businesses. Sources indicate the Council is likely to consider automating 90 percent of Input Tax Credit (ITC) refunds, removing the requirement for officer assessment on low-risk claims.
The current system creates delays that directly affect working capital. Money stuck in pending refund queues cannot be deployed in operations, a problem felt particularly acutely by exporters and manufacturers dealing with the inverted duty structure, where tax paid on inputs exceeds the rate applicable on finished goods. The proposed automation would allow eligible low-risk claims to move through the system without waiting for an officer to assess each one individually.
This builds on a step the Council had already taken, which was allowing 90 percent provisional refunds within seven days for exports and inverted-duty claims. The new proposal would embed automation more deeply into the system rather than treating fast-track processing as the exception.
E-Commerce Businesses to Be Brought Into Automatic Registration
The Council is also expected to close a gap that was left open at its previous meeting. When the automatic GST registration facility was introduced for businesses with Input Tax Credit of up to Rs 2.5 lakh per month, businesses operating exclusively through e-commerce platforms were specifically excluded from the automatic route.
The September 12 agenda is likely to address that exclusion. The proposal would bring e-commerce-only businesses within the same automatic registration framework as comparable offline businesses, removing an anomaly that had created unequal compliance burdens across the same broad category of smaller enterprises.
Automatic Surrender of GST Registration Also Proposed
The simplification agenda extends to the other end of the compliance lifecycle as well. The Council may consider making the surrender of GST registration automatic for businesses meeting the same ITC threshold of up to Rs 2.5 lakh per month.
The current process for exiting the GST system carries steps that create administrative burden, particularly for smaller businesses that may be winding down, restructuring or simply finding that GST registration no longer suits their scale of operations. Automatic surrender would reduce that burden and make the entry and exit process more symmetrical, easier to navigate in both directions.
The Inverted Duty Structure on the Agenda
Beyond refund automation, the Council is expected to take up the broader question of the inverted duty structure, where input tax rates exceed output tax rates and create a chronic accumulation of credits that businesses cannot naturally offset. This structural problem has been a source of friction in the GST system since its inception and affects manufacturers across several sectors.
The September 12 discussion may address both the immediate symptom, through faster and more automated refunds, and explore whether structural rate corrections are needed to reduce the accumulation problem at its source.
Reviewing Last Year’s Decisions
The meeting will also include a review of the impact of decisions taken at the September 2025 Council meeting, examining whether the revenue outcomes, compliance behaviour and market effects have matched the assumptions that drove those decisions. That review will provide the empirical backdrop against which the opposition states’ compensation demands will be argued, and against which any further rate adjustments will be evaluated.
The Scale of Potential Impact
If the automation proposals are approved in their current form, the beneficiaries would be substantial in number. Sources indicate the changes could benefit approximately 90 percent of registered companies, predominantly through reduced compliance burden on smaller businesses and faster return of money through the refund system.
The final shape of any approved measures will depend on the Council’s deliberations on September 12, including the eligibility thresholds, implementation timelines and any conditions attached to the automatic routes for registration, surrender and refunds.
