Table of Contents
Quick Answer
The 57th GST Council recommended relaxing Section 17(5) blocks on items such as outdoor catering, health and life insurance, telecom towers, pipelines, free samples and goods written off on expiry of shelf life. It also recommended a new return-correction and reconciliation framework from the April 2027 return, and e-invoicing for specified reverse-charge supplies and import of services for taxpayers with turnover of ₹5 crore and above, notified from 1 January 2027 (Notification 04/2026-Central Tax). Section 17(5) relief needs an Act amendment.
Section 17(5): which blocks were recommended to be lifted?
Section 17(5) of the CGST Act blocks input tax credit (ITC) on certain supplies. The Council recommended amending it to remove restrictions on ITC for outdoor catering, health and life insurance, telecommunication towers, pipelines laid outside factory premises, free samples, and goods destroyed or written off on expiry of shelf life where the write-off is required by law. The stated aim is to reduce cascading of taxes.
Example (free samples): A manufacturer buys goods for ₹5,00,000 plus 18% GST (₹90,000) and distributes them as free samples. Under the current restriction the ₹90,000 credit is blocked. If Section 17(5) is amended as recommended, the credit could be retained, subject to the final text. This needs an Act amendment.
Same line of business: The Council also recommended limited ITC in the same line of business for restaurant and outdoor catering services, hotel accommodation up to ₹7,500 per unit per day, and gym or fitness services, in the same manner as for passenger transport and tour operator services. This is a rate-notification item.
Return reconciliation: what is recommended from the April 2027 return?
The Council recommended an alternate mechanism to correct liability and ITC in returns, so that mismatches and the resulting notices reduce. The package includes:
- Enhancements in FORM GSTR-1, GSTR-1A and IFF for better reconciliation with GSTR-3B.
- A new “Electronic Statement of tax paid on reverse charge basis and ITC claimed” (Rule 86D).
- Rule 61(1A) and 61(1B): correction mechanisms so GSTR-3B liability matches GSTR-1/1A/IFF, and GSTR-3B ITC matches GSTR-2B.
- FORM GST DRC-03 to carry underlying invoice details.
- Invoice Management System (IMS) changes (Rule 60(6A)): the recipient can accept, reject or keep pending an inward document, with limits on how long a credit note can be kept pending.
- An “Electronic Credit Reversal and Reclaim Statement” (Rule 86C).
- A circular on reporting ITC and reversals in GSTR-3B in the IMS context.
The Council recommended putting the revised mechanism in the public domain for time-bound consultation, with the Union Finance Minister authorised to approve changes on the basis of feedback. Proposed start: the return for April 2027.
Example (illustrative): A supplier reports ₹5,00,000 of outward supplies in GSTR-1 but pays tax on ₹4,50,000 in GSTR-3B. A recipient’s GSTR-2B shows ITC of ₹90,000, but the recipient claims ₹1,10,000 in GSTR-3B. The recommended correction rules are designed so that both mismatches are corrected in the return rather than surfacing later as notices. Final details depend on the rules after consultation.
Credit-ledger blocking: the new objection process (Rule 86A)
Rule 86A allows an officer to restrict debit of the electronic credit ledger where there is reason to believe credit has been fraudulently availed or is ineligible. The Council recommended:
- Inserting sub-rule (1A) providing an objection process against restriction.
- The taxpayer submits an objection within 30 days of intimation; the officer must decide within 30 days of the objection.
- Maximum duration of restriction: the rule text specifies time-limits.
Notification No. 05/2026-Central Tax appoints 1 April 2027 as the effective date for the revised Rule 86A.
E-invoicing from 1 January 2027
Notification No. 04/2026-Central Tax (26 October 2026) expands mandatory e-invoicing from 1 January 2027:
- Applies to taxpayers with aggregate turnover exceeding ₹5 crore in any preceding financial year from 2017-18 onwards.
- Extends to invoices for supplies where tax is payable on reverse charge under Section 9(3) or 9(4), and invoices issued under Section 31(3)(f) for import of services.
- E-invoice schema version 1.2 is scheduled for adoption.
Late-fee relief for small taxpayers
The Council recommended a late-fee waiver under Section 128 for delayed filing of FORM GSTR-3B, GSTR-4, GSTR-9 and GSTR-9C for specified past tax periods, for taxpayers with turnover up to ₹5 crore who file returns by a date to be notified. As of 4 November 2026, the formal notification is awaited; check the CBIC portal before filing.
Circulars already issued on credit-related questions
| Circular | Subject |
|---|---|
| 260/06/2026-GST | Input Service Distributor mechanism |
| 261/07/2026-GST | ITC for banks and NBFCs that opt for Section 17(4) |
| 262/08/2026-GST | ITC on demonstration vehicles |
| 263/09/2026-GST | Export proceeds in foreign exchange or Indian rupees |
| 264/10/2026-GST | Omission of Rule 96(10) |
What should finance teams do now?
- Prepare ERP and billing systems for e-invoicing schema version 1.2 before 1 January 2027.
- Review reverse-charge and import-of-services documentation for turnover above ₹5 crore.
- Align GSTR-2B reconciliation processes with IMS features and track the consultation paper on return corrections.
- Await the notification before filing past-period returns for late-fee waiver.
Related reading: 57th GST Council meeting: key decisions and our GST returns and e-invoicing practice page.
57th GST Council Meeting: In-Depth Special Series
This statutory analysis is part of our comprehensive 6-part technical coverage of the 57th GST Council recommendations, CGST Rules amendments, and CBIC notifications:
- Part 1:
Pillar: Key Decisions & What Is Already in Force
- Part 2:
Registration: Rule 14B, Biometrics & Cancellation Reforms
- Part 3:
Refunds: 10-Day Acknowledgement, Provisional Sanction & Input Services
- Part 4:
Decriminalisation: Arrest Powers Omission & Penalty Relief
- Part 5:
Rates & Exemptions: 5% EV Transport, App Delivery & Scrap TDS
Frequently Asked Questions
Which blocked credits under Section 17(5) did the Council recommend relaxing?▼
The Council recommended removing the restrictions on ITC for, among others, outdoor catering, health and life insurance, telecommunication towers, pipelines laid outside factory premises, free samples, and goods destroyed or written off on expiry of shelf life as required by law. It needs an amendment to Section 17(5) of the CGST Act.
From when will the new GST return correction mechanism apply?▼
The Council recommended that the alternate mechanism for amending liability and ITC in returns be brought into force from the return for April 2027, after a time-bound public consultation on the proposed mechanism.
Who must issue e-invoices for reverse-charge supplies and import of services?▼
Taxpayers with aggregate annual turnover of ₹5 crore and above, for domestic supplies received from unregistered persons where tax is payable under reverse charge and for import of services. Notification No. 04/2026-Central Tax, effective 1 January 2027.
What is the new Rule 86A objection process?▼
From 1 April 2027, when an officer restricts amounts in the electronic credit ledger by FORM GST DRC-26, the taxpayer can object in DRC-27 and get a hearing and an order in DRC-28. The restriction lasts up to one year unless lifted earlier.
Is the late fee waiver for small taxpayers already in force?▼
The Council recommended waiving late fee for delayed GSTR-3B and similar returns under Section 39(1) for taxpayers with turnover up to ₹5 crore in the preceding year, if filed by the end of the month in which they were due. We have not found a notification giving effect to it as on 4 November 2026.
Primary Official Sources
CA Amol Gupta, FCA
Chartered Accountants AdvisoryPublished by H A V N & COMPANY (Amol Gupta & Associates). Providing technical analysis on corporate tax planning, entity incorporation, statutory attestation, and regulatory compliance under the ICAI framework.
General Information Only
This article is general information on the law as at its date of publication and is not professional advice. The Income-tax Act, 2025 applies from 1 April 2026; references to the Income-tax Act, 1961 apply to earlier years. Please take advice on your own facts before acting on it.