Govt working on mechanism to allow refund of ITC on capital goods

An inverted duty structure arises when the tax rate on inputs is higher than that on finished goods, leading to accumulation of unutilised ITC

The Centre is actively exploring ways to allow refunds of unutilised input tax credit (ITC) on capital goods under the inverted duty structure (IDS), signalling a move towards rationalising credit flow for manufacturing sectors affected by inverted duty rates, a senior official told Business Standard. An IDS arises when the tax rate on inputs is higher than that on finished goods, leading to the accumulation of unutilised ITC — the tax paid on inputs that businesses can normally offset against their output liability.

“The government has the appetite and is examining how a refund of