5 Major GST Changes Live from January 1, 2026 + Complete January Compliance Calendar with MCA Extension

 By CA Surekha S Ahuja

January 2026 marks a decisive shift in India’s compliance ecosystem. Multiple GST enforcement measures have gone live simultaneously, portal-level controls have replaced discretionary flexibility, and the Ministry of Corporate Affairs has granted what is widely viewed as a final extension for annual filings.

This is no longer a routine compliance cycle. It is a system-driven enforcement phase where mismatches, delays, or assumptions result in instant financial and operational consequences.

This professionally curated guide is designed for Chartered Accountants, CFOs, founders, and compliance leaders, covering:

• The 5 most critical GST changes effective from 1 January 2026

• A complete and consolidated January 2026 compliance calendar

• The practical impact of the MCA extension and last-mile action points

Five Major GST Changes Effective from 1 January 2026

These are not draft proposals or future amendments. Each change discussed below is live on the GST portal and operationally enforced.

GSTR-3B Auto-Blocking under Rule 88C – The Single Biggest Risk

What has fundamentally changed

The GST system now performs real-time cross-validation between:

• Output tax liability reported in GSTR-1, and

• Tax actually discharged through GSTR-3B

Where the variance exceeds system thresholds, the portal automatically issues Form DRC-01B.

Failure to respond or pay results in the automatic invocation of Rule 59(6), leading to:

• Blocking of subsequent GSTR-1 filings

• Inability to file GSTR-3B

• Disruption of outward supply reporting and ITC flow

Why this change is transformational

• Blocking is system-driven, not officer-driven

• Post-filing explanations have minimal utility

• Cash flow, compliance rating, and buyer confidence are immediately impacted

Immediate professional action

Before filing GSTR-1 due on 11 January:

• Reconcile sales registers with GST liability line by line

• Validate amendments, credit notes, debit notes, and advances

• Ensure absolute parity between books and portal data

This is no longer a compliance formality — it is a risk-control exercise.

Automatic Late Fee Computation for GSTR-9 and GSTR-9C

What has changed

For annual returns not filed by 31 December 2025, the GST portal now:

• Automatically computes late fees (₹200 per day or turnover-based caps)

• Prevents filing unless the late fee is paid upfront

The earlier strategy of filing first and contesting penalties later is no longer available.

Mandatory Biometric Aadhaar Authentication for High-Risk GST Registrations

What has changed

For registrations flagged as high-risk:

• Physical biometric authentication is compulsory

• Verification must be completed at designated GST Suvidha Kendras

• OTP-based Aadhaar authentication is not permitted as an alternative

Business and advisory impact

• New GST registrations may face 15–30 day delays

• Startup and fund-raise timelines require recalibration

• Vendor onboarding and invoicing schedules are affected

Advisory note

GST registration timelines must now be factored into commercial contracts, go-live dates, and investor commitments.

Sin Goods Rate Changes – Notification No. 19/2025

What is changing

For specified goods such as tobacco, pan masala, and allied products:

• Rate revisions have been notified

• HSN-level scrutiny has intensified

• System validations will tighten ahead of February 2026 implementation

Immediate actions required

• Update HSN masters and ERP mappings

• Re-evaluate pricing and margin structures

• Prepare for heightened departmental audits

Shift to Purely System-Led GST Enforcement

The most understated yet profound change

GST administration has now decisively moved to:

• Auto-intimations

• Auto-penalties

• Auto-blocking of returns

Officer discretion has largely been replaced by portal logic and data analytics.

Compliance errors now trigger consequences instantly, predictably, and without negotiation.

January 2026 – Master Compliance Calendar

Due Date	Form / Compliance	Applicability
11 Jan	GSTR-1	Monthly filers (Turnover > ₹5 Cr)
13 Jan	GSTR-1 (IFF)	QRMP Scheme (Optional)
15 Jan	Form 27EQ	TCS Return – Q3 (Oct–Dec 2025)
15 Jan	PF / ESI	December 2025 Payments
18 Jan	CMP-08	Composition Dealers – Q4
20 Jan	GSTR-3B	Monthly filers
22 / 24 Jan	GSTR-3B	Quarterly filers (Staggered)
30 Jan	Forms 26QB / 26QC	Property / Rent TDS
31 Jan	TDS Returns	Q3 – Forms 26Q / 24Q
31 Jan	AOC-4 & MGT-7 / 7A	FY 2024–25 (MCA Extension)

MCA Extension – Final Opportunity till 31 January 2026

What has been extended

• AOC-4 – Filing of financial statements

• MGT-7 / MGT-7A – Annual return

Extension status

• Second extension formally notified

• No additional fees till 31 January 2026

• V3 portal functionality has stabilised

Recommended action

• Clear all pending ROC filings well before the deadline

• Avoid last-day congestion and technical failures

TCS Return – Form 27EQ (Due 15 January 2026)

Applicable under Section 206C(1H) for the quarter ended December 2025.

Why this quarter demands precision

• Festive season turnover spikes

• Threshold breaches under 206C(1H)

• Direct impact on buyers’ Form 26AS and ITC reconciliation

Professional checklist

• Reconcile collections with ledger data

• Validate buyer PAN details

• Prevent downstream ITC disputes and notices

Pre-Budget 2026 Perspective (1 February 2026)

The upcoming Union Budget is expected to emphasise:

• Tax certainty and litigation reduction

• Green energy and ESG-linked incentives

• Initial frameworks for AI and digital economy taxation

Early compliance discipline ensures smoother absorption of budget-driven changes.

Three Immediate Actions Before the Next Working Week

1. File GSTR-1 by 11 January to avoid Rule 88C auto-blocking

2. Check the GST portal for DRC-01B intimations without delay

3. Complete all ROC annual filings by 31 January

Residential Status, TRC Eligibility and DTAA Direction

 A Unified Statutory Decision Framework under the Income-tax Act, 1961

By CA Surekha S Ahuja

Questions around residential status, ₹15 lakh triggers, deemed residency, and Tax Residency Certificate (TRC) often arise because these provisions are read in isolation.
The Act, however, operates as a sequenced legal mechanism.

Residency determines TRC eligibility.
Direction of DTAA relief determines TRC relevance.

This framework integrates Section 6, Section 90 / 90A, Rule 21AB, and judicially accepted principles into a single decision path.

Residential Status — The Only Legal Starting Point

Residential status must be determined exclusively under Section 6, without reference to DTAA, tax rates, or TDS.

Compact Residency Decision Matrix

Trigger Condition	Statutory Result
Physical stay in India 182 days or more	Resident
Indian citizen / PIO visiting India for 120–181 days and Indian income > ₹15 lakh	Resident
Indian citizen with Indian income > ₹15 lakh and not liable to tax in any other country	Deemed Resident u/s 6(1A)
Indian income > ₹15 lakh without satisfying 182 / 120 days or deemed residency	Non-Resident

Key Legal Clarification
The ₹15 lakh threshold does not independently confer residency.
It only activates the 120-day rule or deemed residency.
Absent these statutory gateways, residential status does not change, regardless of tax paid or income quantum.

Consequence of Residency — TRC Eligibility

TRC is governed by Rule 21AB and is not discretionary.

Residential Status	Indian TRC Eligibility
Resident	Eligible
Deemed Resident	Eligible
Non-Resident	Not eligible

An Indian TRC merely certifies fiscal residence in India for a specified period.
It does not adjudicate taxability, PE, source rules, or DTAA articles.

DTAA Relief — Direction Matters More Than Residency

After residency is determined, the direction in which treaty relief is claimed becomes decisive.

DTAA Direction & TRC Relevance Flow

DTAA relief claimed outside India

• Claimant must be resident / deemed resident of India

• Application through Form 10FA

• Issuance of Indian TRC (Form 10FB)

• TRC used only in the foreign jurisdiction

DTAA relief claimed in India

• Claimant must be a non-resident

• Indian TRC is neither relevant nor permissible

• Foreign TRC (and Form 10F, where applicable) is mandatory

Indian TRC cannot be issued merely because:

• income arises in India,

• tax is deducted in India, or

• DTAA benefit is sought within India.

Deemed Residency — Its Limited but Critical Role

Section 6(1A) creates residency only to prevent stateless taxation.

A deemed resident:

• is treated as resident for TRC and DTAA outward claims,

• is not automatically RNOR or ROR — that classification follows separately,

• cannot use Indian TRC to claim treaty relief inside India.

Deemed residency expands India’s right to tax, but does not rewrite treaty mechanics.

Final Integrated Legal Position

The law follows a strict statutory order:

Residency under Section 6 → TRC eligibility → Direction of DTAA relief

Any analysis that:

• begins with DTAA,

• relies solely on ₹15 lakh income,

• or treats TRC as evidence of taxability,

is legally unsound.

The correct compliance lens is always:

1. Am I resident under Section 6?

2. Where is treaty relief being claimed — inside or outside India?

Once these two questions are answered, TRC relevance resolves itself automatically.

LLP Agreement, Stamp Duty & Bank Onboarding

Making Your LLP Operationally and Legally Ready

By CA Surekha S. Ahuja

Introduction: Formation Is Only the First Step

In Part I, we explored why MCA approval does not mean your LLP is fully functional.
Structure, sequencing, DIN planning, and FEMA compliance lay the foundation.

Part II is about making the LLP legally and operationally ready — ensuring the entity you’ve incorporated can actually operate, onboard a bank, accept capital (including NRI funds), and avoid compliance pitfalls.

Drafting the LLP Agreement: The Heart of Your LLP

The LLP Agreement is more than a formality; it governs relationships, profit-sharing, and compliance responsibilities. For LLPs with three or more partners — particularly where an NRI is involved — clarity is essential.

Key aspects to cover:

• Decision-making: Define whether decisions require a simple majority, 2/3 majority, or unanimity.

• Profit-sharing: Clearly specify percentages (equal, capital-based, or hybrid).

• Designated Partners: Identify who is responsible for regulatory compliance.

• Admission and Exit: Specify the process for adding or removing partners.

• Capital Contribution & FEMA Compliance: Especially important for NRIs to avoid regulatory exposure.

• Dispute Resolution: Include arbitration, mediation, or court provisions.

Skipping any of these leaves the LLP vulnerable to disputes, audit queries, or bank delays.

Stamp Duty Compliance: Delhi Example

Stamp duty ensures that the LLP Agreement is legally enforceable. While it is a small step, incorrect handling can invalidate the agreement for banks or regulatory authorities.

Delhi Stamp Duty (for three partners):

• Rate: 1% of total capital contribution

• Maximum cap: ₹5,000

• Payment: Via SHCIL e-Stamping or nearest center

Example Calculation:

• Partner A: ₹50,000

• Partner B: ₹50,000

• Partner C: ₹50,000

• Total capital: ₹1,50,000 → 1% stamp duty = ₹1,500

Execution steps:

1. Use Article Code 46 (LLP Agreement)

2. List LLP as first party, “Partner A & Others” as second party

3. Print first page of agreement on e-stamp paper

4. Signatures: All partners + two witnesses

5. Notarization: Recommended for Delhi

Other cities for context:

• Mumbai: 1% of capital (max ₹15,000)

• Bangalore: Slab-based, ~₹2,000 for >₹1 lakh

• Chennai: Flat ₹300

Timing matters — execute stamped LLP Agreement before bank submission.

Bank Onboarding: Ensuring Smooth Acceptance

Banks often reject LLP accounts because critical compliance steps are missing. For a smooth process:

• LLP Agreement executed and stamped

• Certificate of Incorporation, PAN, TAN, DINs of designated partners

• Proof of registered office (utility bill + NOC)

• Capital deposited via proper banking channels

• NRI partners: Confirm FEMA compliance

A missing document, even if minor, can stall opening of current accounts or international remittances.

Post-Formation Filings

After execution, the LLP must ensure:

• Form 3: Filing of LLP Agreement

• Form 4: Appointment of partner(s) added post-incorporation

• Form LLP(I) & LLP(II): Required when NRI capital is introduced

Timely compliance avoids penalties, notices, or audit challenges.

Indicative Cost Framework (Delhi, Three Partners, Total Capital ₹1.5L)

Item	Estimated Cost	Notes
DSC (3 Partners)	₹4,500 – ₹6,000	Market rate
Name Reservation	₹200	MCA fee
Form FiLLiP	₹500	MCA fee
Stamp Duty	₹1,500	1% of ₹1.5L, Delhi
Form 3 Filing	₹50	MCA fee
Form 4 Filing	₹50	If 3rd partner added later
Professional Fees	₹5,000 – ₹15,000	CA/CS fees
Total Estimate	₹12,000 – ₹23,000	Inclusive of basic professional support; costs may vary by state, capital, or professional

This is an indicative estimate. Professional fees and stamp duty may vary depending on location, capital, and service provider.

From Legal Existence to Operational Reality

Formation creates the LLP on paper.
True operational readiness comes only when:

• LLP Agreement is drafted, stamped, and executed

• Banks accept the entity for account opening and transactions

• Post-formation filings are completed

• FEMA compliance (if any NRI capital) is ensured

Skipping these steps leaves the LLP existing only in records, not in practice.

A compliant LLP from day one saves years of regulatory challenges, bank delays, and partner disputes.

LLP Formation with Multiple Partners and NRI Participation

Why Structure, Sequencing and Regulatory Discipline Matter More Than Speed

By CA Surekha S. Ahuja

Introduction: Why Most LLPs Become Problematic Before They Even Start

The Limited Liability Partnership has earned a reputation for being the “simplest” business structure in India. That reputation is misleading.

On the MCA V3 portal, LLP incorporation can be completed in a few clicks. In practice, however, most LLPs that face banking rejections, FEMA violations, partner disputes, or audit exposure were structurally compromised at the formation stage itself.

This article is written for promoters and professionals who want their LLP to survive not only MCA scrutiny, but also bank due diligence, FEMA reporting, and long-term operational reality — particularly where there are three or more partners or a non-resident partner involved.

LLP Formation Is Not a Filing Event — It Is a Legal Architecture

An LLP is not governed by a single law or regulator. Even before the business begins operations, it sits at the intersection of multiple legal regimes — the LLP Act, income-tax law, FEMA (where applicable), and state stamp legislation.

The most common mistake promoters make is assuming that MCA approval is the end of formation. It is not. MCA approval merely creates the LLP as a legal entity. It does not make the LLP compliant, operable, or bank-ready.

Every shortcut taken at this stage resurfaces later — usually when it is costlier and harder to fix.

The Thresholds That Quietly Change Compliance Obligations

Certain thresholds under the LLP framework operate silently but decisively.

Once the capital contribution crosses ₹25 lakh, or turnover exceeds ₹40 lakh, audit becomes mandatory. There is no discretion involved. Similarly, the introduction of even a single rupee of non-resident capital immediately pulls the LLP into the FEMA framework, irrespective of turnover or scale.

Equally important is the often-ignored trigger of any change in profit-sharing or partner composition, which compulsorily requires amendment of the LLP Agreement and filing with the MCA. Many LLPs continue operating for years without updating these changes, creating documentary contradictions that surface during audits or disputes.

The Three-Partner LLP Problem: Understanding the DIN Constraint

One of the least understood aspects of LLP formation under MCA V3 is the limitation built into Form FiLLiP.

The system allows DIN allotment for only two Designated Partners at the time of incorporation. This means that where three individuals — all new to the MCA ecosystem — intend to form an LLP together, it is not legally or technically possible to obtain three DINs in a single incorporation filing.

This is not a drafting issue. It is a system constraint.

In practice, this leads to two workable structures. The first, and most common, is to incorporate the LLP with two partners and induct the third partner immediately after incorporation. The second is where one of the proposed partners already holds a valid DIN from a prior company or LLP, allowing all three to be reflected at incorporation.

Attempts to bypass this through standalone DIN applications for a “proposed LLP” are theoretically discussed but practically discouraged by the portal. Experienced practitioners avoid this route.

How LLP Formation Actually Unfolds Under MCA V3

From a procedural standpoint, LLP formation still follows three broad steps — digital signatures, name reservation, and incorporation.

Digital signatures are mandatory for all Designated Partners, including NRIs. The system permits overseas applicants using passport-based identification and foreign address proofs, provided documentation is consistent.

Name reservation through RUN-LLP is straightforward, but promoters should remember that approval of name does not validate the structure, capital, or partner arrangement.

Form FiLLiP is where the LLP legally comes into existence. It captures registered office details, partner particulars, DIN allotment (limited to two), and an indicative capital structure. Once approved, the Certificate of Incorporation, PAN, TAN, and DINs are generated.

At this point, the LLP exists in law — but it is still incomplete in substance.

NRI as Partner: FEMA Compliance Starts Earlier Than Most Assume

Where an NRI is a partner, the LLP is permitted only under the automatic route and only in sectors without FDI-linked performance conditions. These are not post-facto checks; they must be evaluated before incorporation.

Capital contribution by an NRI must come strictly through permitted banking channels — either via inward remittance or through NRE/FCNR accounts. Routing funds through resident accounts, adjusting capital through journal entries, or introducing cash immediately renders the structure FEMA non-compliant.

What is often missed is the timing. FEMA reporting obligations arise the moment the LLP accepts non-resident capital, not when the bank raises a query or the auditor flags it. Forms LLP(I) and LLP(II) are statutory requirements, not procedural conveniences.

What Incorporation Achieves — and What It Does Not

Incorporation achieves legal recognition. It does not achieve operational legitimacy.

At the end of the FiLLiP process, the LLP still lacks:

• a legally executed LLP Agreement,

• stamp duty compliance,

• FEMA closure (where applicable),

• and bank onboarding readiness.

Treating these as “post-formation formalities” is the single biggest reason LLPs struggle later.

Closing Note

An LLP that is hurried into existence often spends years correcting foundational errors.
An LLP that is structured deliberately rarely needs correction at all.

This first part has focused on structure, thresholds, DIN constraints, and FEMA discipline at the formation stage.

The second part will address what truly completes the LLP — the LLP Agreement, stamp duty sequencing, bank onboarding, and post-formation compliance discipline.

The 2026 Fortress: Why Indian Family Businesses Must Rethink “Safety” in a Fractured World

By CA Surekha S Ahuja 

Introduction: When “Global” Stops Being Safe

The era of frictionless globalization has quietly—but decisively—ended.

As we enter 2026, global growth projections hover around a modest 3.1%, yet this number conceals a far more complex truth: capital, supply chains, currencies, and even sovereign stability are now being reshaped not by economic cycles alone, but by geopolitical fracture, militarized trade, and asymmetric risk.

For Indian family businesses, this marks a structural inflection point.

Boardroom discussions can no longer remain confined to EBITDA, valuation multiples, or expansion geography. Today, geopolitics has become a balance-sheet variable. Missile ranges in the Middle East, sanctions regimes in Eurasia, and tariff walls in the Atlantic now directly influence input costs, forex exposure, capital allocation, and—most critically—legacy preservation.

The “war economy” is no longer a distant macro headline. It is a silent partner in every serious business decision.

Geopolitical Reality of 2026: Three Fronts, One Balance Sheet

To understand why Indian family businesses must now think in terms of fortresses rather than footprints, we must recognize the three risk vectors shaping 2026.

The Energy Trigger: Oil as a Geopolitical Weapon

Escalating tensions in the Middle East—particularly around Iran and the Strait of Hormuz—have reintroduced oil as a geopolitical choke point. A credible spike toward USD 100 per barrel is no longer alarmist; it is mathematically plausible.

For Indian businesses, this is not merely a fuel cost issue. It is:

• A logistics inflation shock

• A raw-material cost escalator

• A margin compression event

• A downstream consumer demand disruptor

Energy volatility now transmits instantly across manufacturing, transportation, FMCG, and export pricing. In such an environment, cost predictability itself becomes a strategic advantage.

The Eurasian Deadlock: Volatility Without Resolution

The Russia-Ukraine conflict has transitioned into a prolonged war of attrition, increasingly targeting critical infrastructure and commodity corridors.

Its consequences for Indian family enterprises are indirect yet severe:

• Persistent volatility in fertilizers, metals, and energy derivatives

• Pricing instability in construction, infrastructure, and agri-business

• Disrupted long-term procurement contracts

The key risk here is not shortage—but unforecastable pricing, which erodes planning discipline and working-capital efficiency.

The South Asia Risk Premium: Capital Has a Memory

Closer home, renewed friction on India’s borders introduces a subtler but powerful variable: sovereign risk perception.

Foreign institutional capital is hypersensitive to regional instability. Even limited escalation can trigger:

• Sudden capital outflows

• Rupee depreciation

• Equity market volatility

• Higher cost of external commercial borrowing

Family businesses must recognize that currency risk is no longer cyclical—it is geopolitical.

Strategic Shift I: The “Homecoming” of Capital

For over a decade, sophisticated family capital pursued global diversification—London real estate, US equities, offshore structures. That logic is now being reversed.

2026 marks the rise of strategic repatriation.

With Europe facing stagnation and proximity to conflict, and the US struggling with structurally sticky inflation (3–4%), India increasingly represents a relative safe haven—not because it is risk-free, but because its risks are domestic, democratic, and governable.

The Rise of “Reverse Flipping”

This is no longer limited to startups. Family offices are reassessing offshore allocations with a sharper lens:

• Why accept 1–2% real yields in fragile geographies

• When Indian private credit, infrastructure, and operating businesses offer double-digit risk-adjusted returns

• Backed by demographic growth and political continuity

The Repatriation Matrix: A Disciplined Approach

1. Vulnerable Real Estate Holdings
Low-yield properties in Eastern Europe or geopolitically sensitive regions now carry hidden costs—insurance premiums, exit illiquidity, and physical risk. In many cases, liquidation and repatriation under the automatic route is a capital preservation move, not a retreat.

2. Strategic Offshore Assets
Capital invested in strategic technology, intellectual property, or “India+1” manufacturing hubs (Vietnam, Mexico) should be retained. These assets function as trade-barrier hedges, not speculative bets.

3. Idle Dollar Liquidity
The US dollar remains a hedge against INR volatility. Operational liquidity may be maintained in safe jurisdictions (e.g., Singapore), but passive capital must be redeployed into India’s growth engines rather than lying fallow abroad.

Strategic Shift II: Regulatory Agility — The FEMA Opportunity

Regulation is often seen as constraint. In 2026, it is also an instrument of risk management.

Recognizing global volatility, the RBI introduced a crucial amendment in 2025 allowing exporters to retain foreign currency proceeds in IFSC (GIFT City) accounts for up to 90 days (earlier: 30 days).

Why This Matters

This is not a procedural tweak—it is a forex strategy tool.

Instead of mechanically converting every export dollar into INR, businesses can now:

• Match export inflows against import outflows

• Reduce conversion costs and timing risk

• Hedge naturally against short-term currency shocks

In a world where the rupee reacts instantly to geopolitical headlines, cash-flow-aligned forex management becomes a competitive edge.

Strategic Shift III: Supply Chain Sovereignty

In 2026, diversification no longer means buying global indices.
It means owning control over your supply chain.

If a business relies on a single critical input from a conflict-prone region, it is effectively shorting its own continuity.

The New Imperative: Shadow Supply Chains

Forward-thinking family enterprises are reallocating capital to:

• Build backup vendor ecosystems

• Invest in domestic MSMEs

• Establish alternate sourcing in Mexico, Vietnam, or India

This is not inefficiency. It is strategic redundancy.

Western buyers are increasingly mandating “friend-shoring”—requiring 50% or more value addition outside adversarial jurisdictions. Compliance with this is no longer optional; it is a market-access prerequisite.

The Family Behind the Business: Personal Wealth Fortification

A fortress business without a fortified family balance sheet is incomplete.

For business families, personal wealth strategy in 2026 must be conservative, liquid, and intentionally asymmetric.

Core Principles

Liquidity Supremacy
Maintain at least 12 months of lifestyle liquidity, independent of business working capital. In crises, cash disappears first where it is assumed to be “available”.

The Barbell Portfolio

• 10–15% in Gold as a hedge against conflict and currency debasement

• Defensive equities (pharma, FMCG) that preserve value in slowdowns

Interest-Rate Discipline
In a world of uneven rate movements, fixed-rate liabilities offer certainty. Floating-rate optimism is a dangerous gamble in an inflation-anchored war economy.

Conclusion: Safety Is No Longer Global — It Is Strategic

In 2026, the greatest risk facing Indian family businesses is not geopolitics.
It is inertia.

The world has structurally changed. Capital flows are reversing. Supply chains are being weaponized. Regulation is evolving into strategy. Safety is no longer found by being everywhere—but by being deliberate, liquid, and anchored.

The fortress of wealth today is built not on unchecked expansion, but on strategic consolidation, intelligent repatriation, and sovereign-aligned resilience.

Stay liquid. Stay hedged. Stay adaptive.

And for the first time in many years, when family businesses ask where safety truly lies—the answer, quite simply, may be:

Home.

GST Export Strategy for FY 2026–27: A Cash-Flow and Risk-Based Choice Between LUT and IGST

Choosing Between LUT and IGST Route – A Cash-Flow, Compliance & Risk-Based Framework

By CA Surekha S. Ahuja

As FY 2025–26 draws to a close, exporters are required to take an important forward-looking decision for FY 2026–27:
whether exports should be made under LUT without payment of IGST, or with payment of IGST followed by refund.

This choice is often misunderstood as a technical or procedural issue. In reality, it is a strategic decision with direct implications on working capital, compliance certainty, and operational ease. The law permits both routes. The business outcome, however, differs materially depending on the exporter’s profile.

This guidance note distils experience from practical GST administration, audits, and refund behaviour to help exporters make the right choice upfront, rather than correcting it later at the cost of blocked cash and avoidable litigation.

The Foundational Principle That Must Anchor the Decision

Exports are zero-rated supplies under Section 16 of the IGST Act. GST, by design, is not intended to become a cost, nor a financing burden, for exporters.

Both the LUT route and the IGST-payment route are legally valid. The distinction between them lies only in the timing and movement of funds, not in tax incidence. Any strategy that converts GST into a long-standing receivable on the balance sheet defeats the very purpose of zero-rating.

What Actually Changes Between LUT and IGST Routes

Under the LUT mechanism, exports are made without payment of IGST and the exporter claims refund of accumulated input tax credit. This results in no upfront tax outflow and a relatively stable working capital position.

Under the IGST route, tax is paid at the time of export and recovered later by way of refund. While this may appear neutral on paper, in practice it introduces temporary but significant cash blockage, dependence on automated systems, and exposure to refund mismatches.

The difference is not theoretical—it is felt directly in liquidity, especially for exporters with regular volumes.

Services vs Goods: Where the Strategic Line Is Clear

For exporters of services, the answer is largely settled. The LUT route should be treated as the default option.

Service exports do not benefit from shipping-bill-based automated refunds. Refunds under the IGST route for services involve higher scrutiny, slower processing, and avoidable blockage of funds. Paying IGST upfront in such cases offers no commercial advantage and often complicates reconciliation.

The IGST route for service exporters should therefore be confined to rare, exceptional transactions, not adopted as a routine method.

For exporters of goods, the decision requires nuance. Where exports are regular or continuous, LUT remains the superior option due to better cash flow discipline. The IGST route may be considered where exports are occasional or one-time, and the exporter has surplus liquidity and a clean refund track record. The ICEGATE automation system works best in low-volume, clean-data scenarios—not in repetitive, high-frequency exports.

Domestic and Export Supplies Together: The Most Misjudged Area

Businesses supplying both domestically and internationally often make the mistake of selecting an export route without analysing their ITC absorption capacity.

The decisive question is simple:
Is the input tax credit naturally absorbed against domestic output GST?

Where the answer is negative or only partially positive, adopting the IGST route leads to a double working capital blockage—first by utilising ITC to pay IGST on exports, and then by waiting for its refund. In such cases, LUT is not merely preferable; it is strategically essential.

Only where domestic supplies fully and consistently absorb ITC, and exports are infrequent, can the IGST route be selectively considered without stress.

Why Export Ratios Alone Are Misleading

Export percentage is often over-emphasised. In practice, regularity of exports matters more than their proportion.

Continuous monthly exports—even at moderate ratios—are better handled under LUT. Any export of services, irrespective of volume, tilts strongly in favour of LUT. IGST payment is best reserved for isolated, non-recurring export transactions.

ITC Accumulation: The Hidden Driver of the Decision

Accumulation of ITC is not an anomaly; it is a structural feature of many export businesses, especially those that are labour-intensive, input-heavy, or engaged predominantly in zero-rated supplies.

It is important to clarify that ITC on GST-paid labour services is generally admissible, provided the services are used in furtherance of business and are not hit by specific restrictions under Section 17(5). Consequently, labour-heavy exporters will almost inevitably accumulate ITC.

For such businesses, opting for the IGST route converts GST into a financing cost. LUT, on the other hand, aligns naturally with their credit profile and preserves liquidity.

Switching Between LUT and IGST: Legal but Strategically Unsound

The law does not prohibit switching between the two routes. However, frequent switching introduces operational friction—refund mismatches, portal inconsistencies, audit flags, and unpredictability in cash flow.

A disciplined approach is to select one principal route for the financial year, aligned with the business model, and deviate only for exceptional shipments where commercial reasons clearly justify it.

Foreign Exchange Fluctuation: No GST Consequence

Foreign exchange gains or losses arising on realization of export proceeds do not constitute a separate supply. They do not alter GST liability and do not affect refund eligibility. This position applies uniformly to exports, deemed exports, and direct port shipments.

GST valuation is fixed at the time of supply. Subsequent realization differences remain an accounting matter, not a GST event.

Strategic Takeaway for FY 2026–27

Based on FY 2025–26 behavior, exporters should default to the LUT route where exports are recurring, services are involved, ITC accumulates, or working capital sensitivity is high. The IGST route should be reserved for rare, low-frequency exports where liquidity is strong and refund certainty is demonstrably high.

Final Perspective

GST is intended to circulate within the business ecosystem, not sit idle as a refund claim.
When GST consistently appears as a receivable in the balance sheet, it is not a compliance success—it is a strategic warning.

The export route decision, if taken correctly at the beginning of FY 2026–27, can quietly save months of cash blockage and years of avoidable follow-up.

Crypto & Specified Digital Assets in Income-tax Returns (AY 2026–27)

 By CA Surekha S Ahuja

Introduction: AY 2026–27 – Compliance Is Now Mandatory, Not Optional

Assessment Year 2026–27 is a structural inflection point for crypto taxation in India:

• Resident Indians are required to declare all crypto income, including trading gains, staking, and airdrops.

• Non-Residents (NRIs, PIOs, FIs) must declare income sourced in India, including capital gains from sale on Indian exchanges, and pay tax accordingly under applicable DTAA provisions.

The risk is no longer aggressive tax planning but system-driven CPC adjustments and procedural defaults, which can trigger penalties even for legally earned income.

This practitioner-focused note is aimed at professionals and taxpayers seeking disciplined compliance, rectification strategy, and long-term, penalty-free wealth creation.

Declaration Alignment Across Residents & Non-Residents

Residents

• Must declare crypto gains in Schedule VDA.

• Gains taxed at 30% without deduction except cost of acquisition.

• Losses cannot be offset against other income.

• Interest, airdrops, staking: treated as income from other sources.

Non-Residents

• Only income sourced in India is taxable.

• If DTAA applies, claim relief via Form 10F & TRC.

• Report Indian crypto exchange gains in Schedule VDA.

• Maintain documentation of foreign exchange remittances to avoid mismatches.

Professional Insight:

CPC does not distinguish Resident vs NRI unless the return is coded incorrectly. A misalignment triggers automatic adjustments, which can create unnecessary correspondence and delay refunds.

Schedule VDA: Row-by-Row Filing Mistakes for All Categories

Common Errors (Residents & NRIs):

1. Netting gains/losses instead of reporting transaction-wise.

2. Omitting crypto tax paid or mapped to TDS/Advance.

3. Misclassifying income (e.g., treating trading gains as “Other Income”).

4. Incorrect transaction dates causing AIS/ITR mismatch.

Strategic Rule:

Correct Schedule VDA submission resolves 80–90% of CPC crypto-related adjustments for all taxpayers.

CPC Adjustment vs Substantive Exposure

CPC Adjustment (Procedural)

• Automated, system-generated.

• Triggered by mismatch, missing data, or incorrect reporting.

• Rectifiable via Section 154.

Substantive Exposure (Legal)

• Requires evidence of concealment or fraud.

• Human-driven assessment by AO/DRP.

• Can apply penalties under Sections 270A, 271, 271AAC.

Professional Tip:

Treat CPC adjustment as a diagnostic opportunity, not an accusation—applicable equally to Residents & NRIs.

Rectification Strategy if CPC Adjusts Crypto Income

Step 1: Identify Trigger

• Missing Schedule VDA entries?

• Tax paid but unlinked?

• AIS mismatch?

Step 2: Action Path

• Section 154 Rectification (preferred).

• Revised Return only if original return misclassifies source or residency.

Step 3: Maintain Proof

• Transaction statements

• Exchange records

• Tax remittance evidence

• Cost basis calculation

Pro Tip:

Rectification should clarify, not re-characterise. Overcorrection can invite AO scrutiny.

Penalties and Interest: How to Avoid Defaults

Penalty triggers (Residents & NRIs):

• Failing to report taxable crypto income.

• Ignoring CPC adjustment notices.

• Late payments of self-assessed tax or interest.

• Filing inconsistent rectifications.

Safe Practices

• Timely filing and payment.

• Accurate Schedule VDA reporting.

• Maintain AIS / exchange reconciliation.

• Respond professionally to CPC notices.

Key Insight:

Disciplined compliance protects both Residents and Non-Residents equally from Sections 270A, 271, and 194S consequences.

Long-Term Wealth Creation: Compliance as Strategy

Crypto wealth is increasingly judged by pedigree of compliance:

• Residents: enables clean repatriation, credible net worth, and estate planning.

• Non-Residents: ensures DTAA benefits, avoids double taxation, and smooth cross-border remittance.

Strategic View:

In India, unexplained crypto wealth is a compliance liability. Legal wealth grows through disciplined reporting, not aggressive concealment.

Do’s & Don’ts 

Do

• Declare all taxable crypto transactions in Schedule VDA.

• Pay taxes and map to CPC/TDS.

• Respond to CPC notices professionally.

• Retain all evidence and reconciliations.

Don’t

• Net gains/losses improperly.

• Hide Indian-sourced gains if NRI.

• Ignore AIS mismatches or CPC adjustments.

• File emotional or defensive rectifications.

Conclusion: Compliance is the Real Alpha

For AY 2026–27, both Residents and Non-Residents must recognize that:

• Law is clear. System is automated.

• Discipline and accuracy prevent penalties, reduce correspondence, and protect wealth.

• CPC adjustments are opportunities for correction, not threats.

Bottom line: Strategic, disciplined compliance is the cornerstone of long-term, legally secure crypto wealth in India.

ITAT Appeals After the 2025 Amendment: Digital Institution as a Jurisdictional Condition

 By CA Surekha S Ahuja

Form 36, DSC Authentication, and the End of Physical Filing

Effective from 3 January 2026

The Income-tax (Appellate Tribunal) Amendment Rules, 2025, notified under section 255(5) and published in the Official Gazette on 3 January 2026, mark a decisive procedural inflection point in ITAT practice.

The amendment does not merely prescribe electronic filing. It redefines the legal act of instituting an appeal. Post-amendment, an appeal before the ITAT comes into existence only through valid electronic filing authenticated by a Digital Signature Certificate (DSC). The Tribunal’s jurisdiction is now invoked digitally—not presumed through paper submission.

Effective Date: The Jurisdictional Cut-Off

Rule 1(2) expressly provides that the amended rules come into force from the date of publication, i.e., 3 January 2026.

• Appeals instituted prior to this date continue to be governed by the erstwhile procedure

• Appeals instituted on or after this date must strictly comply with the amended digital framework

There is no transitional or saving clause. Any appeal attempted to be filed otherwise than in accordance with the amended Rule 6 after the effective date is non est, with attendant exposure to limitation risk.

Rule 6: Reconstitution of the Filing Act

Rule 6 has been entirely substituted to provide that:

A memorandum of appeal to the Appellate Tribunal shall be filed by the appellant or by an agent authorised by him under his digital signature.

The legal consequences are immediate and unambiguous:

• Electronic filing is mandatory

• Authentication by DSC (as recognised under section 3 of the Information Technology Act, 2000) is jurisdictional

• An appeal uploaded without DSC authentication is defective ab initio

The earlier distinction between filing and signing does not survive the amendment.

No Concept of an “Unsigned” Appeal

Handwritten signatures have ceased to have independent legal relevance. The commonly used expression “with or without signature” is legally inaccurate in the post-amendment context.

Digital authentication is the sole recognised mode of execution of an appeal.
Anything short of this does not constitute a valid institution in law.

Exclusive Portal-Based Filing

All appeals and applications before the ITAT must now be filed exclusively through the e-filing portal:

https://itat.gov.in/efiling

• Assessees: Login through OTP or Pre-Validation Code (PVC)

• Departmental Representatives: Login through bench-registered credentials

There is no counter filing, physical submission, or parallel mode available post-amendment.

Filing Discipline: Form 36 in Practice

An appeal is legally instituted only upon completion of the following sequence:

• Portal login and correct bench selection

• Accurate completion of Form 36, including email address and mobile number (now statutorily relevant for service)

• Upload of prescribed Rule 9 enclosures (single electronic copies)

• Online payment of Tribunal fee

• DSC authentication via EmSigner

• Generation of system acknowledgement and appeal number

Anything short of this sequence does not result in a cognisable appeal.

Enclosures, Revisions, and Paper Books — The Compressed Position

• Rule 9 rationalises annexures to single electronic copies, with specific codification for DRP and Commissioner-level appeals

• Rule 9A mandates filing a Revised Form 36 for any change in address, email, or mobile; informal intimation is legally irrelevant

• Rule 18 eliminates physical paper books; all compilations must be digitally filed and authenticated in accordance with Rule 6

Stays, Miscellaneous Applications, and Defects

• Stay applications and miscellaneous applications now follow the same digital procedure as appeals

• Prior applications under section 254(2) and related Tribunal orders must be disclosed and uploaded

• Defects are system-generated, dashboard-based, and rectifiable only electronically

• Service of notices and orders through registered email and mobile is conclusive

Closing Note: The Professional Position

The 2025 Amendment completes the Tribunal’s transition from a paper-administered forum to a system-administered court.

In this regime:

Limitation protects an appeal only if jurisdiction is correctly invoked.

For professionals, the message is clear. DSC readiness, portal discipline, and procedural exactitude are no longer ancillary—they are foundational. Post-2026 ITAT litigation will be tested first on institutional validity, and only thereafter on merits.

Income-tax Act, 2025: A Re-Codification of Law, Not a Re-Creation of Liability

By CA Surekha S Ahuja

Why the New Act Changes How We Read the Law — Not What the Law Is

“When Parliament rewrites a statute to simplify its language, interpretation must preserve continuity of principle, not surrender to novelty of words.”

The Real Question the 2025 Act Poses

The enactment of the Income-tax Act, 2025 has caused a degree of interpretative unease that is unusual for a statute which, by legislative declaration, does not alter tax policy or tax rates. The uncertainty arises not from what the law does, but from how different it looks.

For taxpayers, Chartered Accountants, tax administrators, and courts, the central question is therefore precise and fundamental:

Does a change in statutory language, structure, and terminology amount to a substantive change in law?

When examined with interpretative discipline and fidelity to legislative intent, the answer is unequivocal: No.

The Income-tax Act, 2025 is a re-enactment undertaken for clarity, coherence, and modern presentation. It is not a re-legislation of substantive rights, obligations, or liabilities. It modernises the vehicle; it does not alter the destination.

Legislative Intent: The Primary Interpretative Anchor

The Statement of Objects and Reasons accompanying the Income-tax Act, 2025 is not ornamental. In statutory interpretation, it is foundational.

It records three unambiguous pillars on which the new Act rests:

1. Structural Simplification – to improve clarity, coherence, and navigability

2. Policy Continuity – no major tax policy changes are intended

3. Stability – tax rates and core principles remain unchanged

This legislative declaration carries a decisive interpretative consequence. Courts have consistently held that a re-enactment undertaken without an expressed policy shift cannot be read as a legislative reset.

Accordingly, where two interpretations are possible, the interpretation that preserves continuity must prevail over one that introduces disruption. Any other approach would defeat the very object of the re-enactment.

Drafting Reform Is Not Substantive Reform

The Income-tax Act, 2025 consciously adopts modern drafting techniques:

• Shorter and cleaner sections

• Plain, accessible language

• Consolidation of allied provisions

• Elimination of archaic expressions such as “Notwithstanding anything contained…”

However, drafting refinement is not doctrinal reform.

The Legislature has altered the manner of expression, not the legal effect. To assume that linguistic improvement automatically signals a change in law would be to elevate grammar over governance and syntax over substance.

Courts do not interpret tax statutes by counting words; they interpret them by discerning intent, continuity, and consequence.

“May” vs. “Shall”: A Textbook Case of Misread Change

The Apparent Shift

The most debated feature of the 2025 Act concerns provisions relating to unexplained income (Sections 102–106), corresponding to Sections 68–69D of the 1961 Act.

The linguistic shift is evident:

• Old Law (Section 68): The sum may be charged to income-tax

• New Law (Section 102): The sum shall be charged to income-tax

At first glance, this appears to remove discretion and mandate compulsory additions once an explanation is found unsatisfactory.

Why This Reading Fails in Law

Such a literal reading is legally untenable.

Under the 1961 Act, the Supreme Court in CIT v. Smt. P.K. Noorjahan (237 ITR 570) authoritatively held that the rejection of an explanation does not automatically compel an addition. The Court recognised that discretion based on facts and surrounding circumstances is intrinsic to fair taxation.

This judgment did not merely interpret a word; it declared a principle of tax jurisprudence.

Applying settled interpretative principles:

• Judicial continuity: A re-enactment does not nullify Supreme Court precedent unless it does so expressly

• Constitutional fairness: Mandatory language cannot override reasonableness and proportionality

• Legislative consistency: A statute that disclaims policy change cannot be read to effect one by implication

The Correct Reading

The word “shall” in Section 102 clarifies the charging framework; it does not mandate mechanical taxation divorced from facts. To read it otherwise would:

• Contradict the Statement of Objects and Reasons

• Impliedly overrule binding Supreme Court precedent

• Invite constitutional challenge

Such a construction is unlikely to withstand judicial scrutiny.

Virtual Digital Space: Codifying What Already Existed

The explicit inclusion of “Virtual Digital Space” in Section 261 has been misconstrued by some as a dramatic expansion of search and seizure powers.

The reality is far more restrained.

Even under the 1961 Act:

• Digital evidence was judicially recognised

• Emails, cloud data, and online accounts were accessed during proceedings

• Courts had already adapted search jurisprudence to technological reality

The omission earlier was linguistic, not legal.

The 2025 Act merely names and defines what was already implicit. Importantly:

• Authorization thresholds remain unchanged

• Procedural safeguards are intact

• Constitutional protections continue to govern

This is recognition, not expansion.

“Tax Year”: Simplification Without Extension

Replacing the dual concepts of Previous Year and Assessment Year with a single Tax Year is among the most taxpayer-friendly reforms in the Act. It removes decades of conceptual confusion and aligns Indian tax law with global norms.

Concerns that reassessment timelines under Section 282 have been extended stem from faulty comparison.

• Earlier law counted limitation from the end of the Assessment Year

• The new law counts from the end of the Tax Year

Once the reference points are correctly aligned, the effective reopening window remains substantially the same. There is no enlargement of limitation—only a cleaner starting point.

Conclusion: The Only Sustainable Legal Position

When read as a whole, and in light of its declared intent, the Income-tax Act, 2025 is best understood as:

• New in language

• Modern in structure

• Unchanged in substance

It does not create new liabilities by stealth, nor does it remove judicial discretion by linguistic substitution. Parliament has rewritten the statute for clarity and accessibility, not for augmenting revenue power.

As the profession transitions into this new legislative format, the advisory position must remain firm and consistent:

The law remains what it always was.
Only its expression has matured.