The 55th GST Council meeting, held in Jaisalmer, Rajasthan, under the chairmanship of Union Finance Minister Smt. Nirmala Sitharaman brought several key recommendations impacting GST rates, compliances, and facilitation measures. These recommendations focus on reducing tax burdens, simplifying procedures, and clarifying ambiguities in existing GST provisions. Let’s break down the significant updates and their implications.
1. GST Rate Reductions and Exemptions
The GST Council made notable recommendations to reduce GST rates on certain goods and services, which could benefit various industries:
- Fortified Rice Kernel (FRK): The council reduced the GST rate on FRK, classified under HSN 1904 to 5%.
- Gene Therapy: GST for gene therapy treatments will be fully exempt.
- IGST Exemptions: The IGST exemption extended to equipment, parts, tools, and software related to the assembly or manufacture of LRSAM systems under Notification 19/2019-Customs.
- Food Inputs for Free Distribution: A concessional 5% GST rate will continue to apply to food inputs used in food preparations intended for free distribution. This is applicable to economically weaker sections under government programs.
- Reduced Cess Rate: The rate of Compensation Cess on supplies to merchant reduced to 0.1%, aligning with the GST rate on such supplies.
2. GST on Services: Key Changes
Several service-related changes proposed to streamline operations and enhance compliance are as follows:
- Sponsorship Services: The supply of sponsorship services provided by body corporates will now come under the Forward Charge Mechanism. The forward charge mechanism simplifies tax collection as the supplier collects and remits GST, eliminating the need for reverse charge compliance by the recipient.
- Motor Vehicle Accident Fund Contributions: GST exemption recommended on contributions made by general insurance companies from third-party motor vehicle premiums to the Motor Vehicle Accident Fund. This fund provides compensation and cashless treatment to road accident victims.
- Hotel and Restaurant Services: The Council proposed a new structure for the GST rate on restaurant services in hotels based on the value of accommodation provided, with options for ITC claims:
- 18% GST with ITC if the value of accommodation exceeds ₹7,500 per unit.
- 5% GST without ITC if the value of accommodation is below ₹7,500.
- Hotels will have the option to opt for 18% GST with ITC by submitting a declaration before the start of the financial year.
3. Clarifications on Taxability and Exemptions
A series of clarifications issued to resolve ambiguities around the taxability of certain items. They are as follows:
- Vouchers: The GST Council clarified that vouchers are not considered a supply of goods or services. This clarification simplifies the tax treatment of vouchers and includes the removal of certain ambiguities in the CGST Act, 2017.
- Penal Charges by Banks and NBFCs: No GST now levied on penal charges collected by banks and NBFCs from borrowers for non-compliance with loan terms.
- GST on Old Vehicles: The GST rate on the sale of old and used vehicles, including EVs, increased from 12% to 18%, but only on the margin (the difference between purchase and sale price).
4. Measures for Trade Facilitation
In a bid to simplify trade and improve compliance, the Council recommended several significant changes:
- Supply of Goods from SEZ/FTWZ: Transactions involving goods warehoused in Special Economic Zones (SEZ) or Free Trade Warehousing Zones (FTWZ) and supplied before clearance for export or domestic tariff areas now explicitly treated as non-supply.
- Track and Trace Mechanism: The GST Council proposed the insertion of a new provision under Section 148A of the CGST Act, 2017, to enable the implementation of a Track and Trace Mechanism for specific commodities prone to evasion.
5. Streamlining GST Compliances
The Council also took steps to simplify compliance processes:
- Clarification on Input Tax Credit (ITC): A clarification issued regarding the reversal of ITC for electronic commerce operators, simplifying compliance for businesses involved in e-commerce.
- Late Fee Waiver for GSTR-9C: For the periods from 2017-18 to 2022-23, the GST Council recommended a waiver of late fees for the delayed filing of FORM GSTR-9C. This measure will benefit businesses and ease the burden of compliance.
- Clarification on ITC Under Section 16(2)(b): Clarification was provided in terms of ex-works contract. Hereon after, ITC can only be claimed if the supplier has deposited the tax to the government and the recipient has made payment to the supplier. This clarification prevents fraudulent claims and ensures that ITC claims are aligned with actual tax payments.
- Recording of Recipient Details: In respect of ‘Online Services’ such as supply of online money gaming, OIDAR services, etc., businesses must mandatorily ensure accurate recording of the unregistered recipient’s state name to avoid mismatches in GST returns.
Press Release of 55th GST Council Meeting: https://pib.gov.in/PressReleasePage.aspx?PRID=2086873
6. Amendments Pertaining to Law and Procedure
- Section 107 (Appeals to Appellate Authority): The amendment reduces the pre-deposit requirement for cases involving only penalties (and not tax demands) from 25% to 10% of the penalty amount. This aims to reduce the burden on taxpayers filing appeals before the Appellate Authority.
- Section 112 (Appeals to Appellate Tribunal): A new provision was introduced requiring a pre-deposit of 10% of the penalty amount (instead of the earlier 25%) for filing appeals before the Appellate Tribunal in cases involving only penalty demands.
7. Amendments Regarding Invoice Management System (IMS)
The Council recommended multiple changes to enable seamless implementation of the IMS, which is aimed at enhancing transparency and compliance:
- Legal Framework for GSTR-2B Generation: Amendments to Section 38 of the CGST Act, 2017 and Rule 60 of the CGST Rules, 2017 were proposed to establish the legal framework for generating FORM GSTR-2B based on taxpayers’ actions in the IMS.
- Reversal of ITC for Credit Notes: Amendments to Section 34(2) were proposed to require the recipient to reverse the ITC attributable to credit notes. This allows the supplier to reduce their output tax liability effectively.
- Adjustment of Output Tax Liability: A new Rule 67B proposed, prescribing how a supplier’s output tax liability will adjust against credit notes issued by them.
- Sequential Filing of Returns: Amendment to Section 39(1) and Rule 61 ensure that FORM GSTR-3B for a tax period can only be filed after the availability of FORM GSTR-2B on the GST portal.
8. Other Important Recommendations
Other measures included:
- Increase in GST on Popcorn: Ready-to-eat popcorn mixed with sugar will attract a 18% GST if it’s categorized as sugar confectionery.
- Amendment in Definition of Pre-Packaged Goods: The definition of pre-packaged and labelled goods amended to ensure greater consistency in GST treatment across commodities. Pre-packaged goods will now cover commodities intended for retail sale and does not contain more than 25 kg or 25 litres of material.
- Changes in GST on Autoclaved Aerated Concrete (ACC) Blocks: ACC blocks containing more than 50% fly ash taxed at 12% GST.
What These Decisions Mean for Stakeholders
Here’s how the decisions like GST impact on agriculture, GST on old vehicles, GST for gene therapy, and GST increase for construction materials will impact respective stakeholders:
- Public Welfare
Reducing GST on fortified rice and exempting gene therapy reflect the Council’s focus on improving public welfare and health. These changes will benefit vulnerable communities and patients requiring advanced medical treatments.
- Agriculture
There was some GST impact on agriculture industry. Exemptions for black pepper and raisins remove tax burdens on farmers, enhancing their incomes and strengthening the agricultural sector.
- Construction Industry
Reduced GST on AAC blocks supports green construction, encouraging the use of eco-friendly materials.
- Automotive Sector
The increased GST on used vehicles, including EVs, could raise costs for buyers. However, it ensures uniform taxation across all vehicle categories.
- Financial Sector
Clarifying GST on penal charges and vouchers simplifies compliance for banks, NBFCs, and businesses. This reduces ambiguity and potential disputes.
Missed Expectations
Despite certain expectations from the 55th GST Council Meeting, several demands remain unresolved:
- Aviation Turbine Fuel (ATF) Under GST
The aviation sector has long sought the inclusion of ATF under GST. A unified tax rate could lower fuel costs and provide relief to airlines struggling with high operational expenses. - Insurance Sector Relief
The deferral of GST rate cuts on life and health insurance premiums prolongs high tax burdens. These rates deter consumers from purchasing essential insurance policies. - Online Food Delivery Services
The council did not finalize the proposed reduction in GST for online food delivery services from 18% to 5%. This decision could have benefited consumers and platforms like Swiggy and Zomato. - Simplification for E-Commerce Sellers
E-commerce platforms hoped for simpler GST compliance rules for sellers, especially regarding thresholds and interstate sales. However, no announcements took place in this regard.
Conclusion: The Road Ahead for GST
The recommendations from the 55th GST Council meeting is a significant step towards enhancing the ease of doing business. Businesses and taxpayers should stay informed about these changes to ensure compliance and optimize their GST processes.
The council simplified complex issues such as voucher taxation, penal charges, and pre-packaged goods, the GST Council. This way it is working towards a more transparent and efficient tax system. These changes, set to be implemented in the upcoming financial years, promise to ease the operational burden across sectors.