The Ministry of Finance (Department of Revenue) has issued Notification No. G.S.R. 225(E) dated March 30, 2026, notifying the Goods and Services Tax Settlement of Funds Rules, 2026, marking a significant step towards enhancing transparency, efficiency, and accuracy in the settlement and apportionment of GST revenues between the Centre and States.
These rules have been notified under the provisions of the Central Goods and Services Tax Act, 2017 and the Integrated Goods and Services Tax Act, 2017, based on the recommendations of the GST Council. The rules shall be deemed to have come into force with effect from April 1, 2025.
Comprehensive Framework for GST Fund Settlement
The newly notified rules lay down a detailed and structured mechanism for the settlement of funds arising from cross-utilization of input tax credit and apportionment of Integrated GST (IGST) between the Centre and the States. These provisions aim to ensure seamless accounting and timely transfer of funds across jurisdictions.
A key feature of the rules is the establishment of a robust reporting system through standardized formats (GST STL Forms), which will be electronically generated and transmitted through the common GST portal to the concerned authorities.
Monthly Electronic Reporting and Data Transmission
The rules mandate that the GST Network shall electronically transmit settlement-related reports to authorities by the 25th of every month, ensuring timely reconciliation and fund transfers. In case of holidays or extension of return filing deadlines, the reporting timelines will be adjusted accordingly.
These reports will capture granular details of tax utilization, cross-credit adjustments, and liabilities discharged using various tax components.
Detailed Reporting on Cross-Utilization and Apportionment
The framework introduces elaborate provisions for reporting and settlement in cases such as:
- Cross-utilization of IGST credit towards payment of CGST, SGST, or UTGST and vice versa
- Apportionment of IGST between Centre and States based on place of supply
- Transactions involving inter-State supplies, imports, exports, and special economic zones
- Cases involving ineligible input tax credit, reversals, and adjustments
The reporting will be carried out through multiple prescribed formats such as GST STL-1 series and GST STL-2 series, ensuring comprehensive coverage of all scenarios involving fund transfers.
Handling of Special Cases and Adjustments
The rules also provide mechanisms for:
- Settlement of funds arising from tax demands, appeals, interest, and penalties
- Apportionment where place of supply cannot be determined or taxpayer identification is unavailable
- Adjustments in cases where previously apportioned IGST is subsequently refunded, reversed, or modified
- Accounting of refund adjustments and electronic cash ledger transfers
These provisions ensure that even complex and exceptional scenarios are systematically addressed within the settlement framework.
Integrated Settlement Reports for Centre and States
A consolidated monthly settlement report will be prepared for each State and Union Territory, summarizing all fund transfers between IGST, CGST, and SGST/UTGST accounts. Similarly, a separate consolidated report will be generated for the Union Government.
This will facilitate greater fiscal transparency and coordination between the Centre and States.
Role of Authorities and Reconciliation Mechanism
The rules assign specific responsibilities to various authorities, including:
- Principal Chief Controller of Accounts
- Central Board of Indirect Taxes and Customs
- State Accounting Authorities and Tax Nodal Authorities
A structured reconciliation mechanism has also been introduced, requiring authorities to identify and report discrepancies within stipulated timelines, ensuring accuracy in fund settlement.
Enhancing Transparency and Efficiency in GST Regime
The notification represents a major reform in the GST ecosystem by institutionalizing a digitally-driven, standardized, and transparent system for settlement of funds. It is expected to:
- Reduce discrepancies in fund transfers
- Improve inter-governmental fiscal coordination
- Strengthen accountability in GST revenue sharing
- Enhance overall efficiency of the GST framework
Background:
The GST settlement process is crucial for the proper distribution of tax revenues between the Centre and States, particularly in cases involving inter-State transactions and cross-utilization of tax credits. The newly notified rules replace the earlier framework to align with evolving operational requirements and technological advancements.
The Complete Notification along with the Forms can be accessed at: https://a2ztaxcorp.net/wp-content/uploads/2026/03/MoF-Notification-regarding-Goods-and-Services-Tax-Settlement-of-Funds-Rules-2026.pdf
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