55th GST Council Meet: Decisions Under FM Nirmala Sitharaman’s Chair in Jaisalmer
The GST Council, in its 55th meeting, made various recommendations, including reducing GST on Fortified Rice Kernel to 5% and exempting gene therapy from GST. It clarified that vouchers are not subject to GST and that penal charges by banks and NBFCs are also not taxable. Additionally, pre-deposit requirements for penalty-related appeals have been reduced.
The GST Council discussed and recommended several key changes, including updates to GST rates, relief measures for individuals, steps to simplify trade, and efforts to streamline GST compliance.
Changes in GST Rates for Goods & Services: What You Need to Know!
GOODS
• The GST rate on Fortified Rice Kernel (FRK) will be reduced to 5%.
• GST on gene therapy will be completely exempt.
• IGST exemption will apply to systems, parts, and tools used for assembling or manufacturing the LRSAM system.
• Compensation Cess on supplies to merchant exporters will be reduced to 0.1%, matching the GST rate for such supplies.
• Imports of equipment and sample consumables by the International Atomic Energy Agency (IAEA) inspection teams will be exempt from IGST under certain conditions.
• A 5% GST rate will continue for food inputs used in preparing meals meant for free distribution to economically weaker sections under government programs, subject to existing rules.
SERVICES
• Sponsorship services provided by body corporates will now fall under the Forward Charge Mechanism, meaning the service provider will handle the GST.
• Contributions made by insurance companies from third-party motor vehicle premiums to the Motor Vehicle Accident Fund (used for compensating road accident victims) will be exempt from GST.
• The definition of "declared tariff" will be removed, and the GST on hotel restaurant services will depend on the previous year’s accommodation value:
• 18% with ITC if the value exceeded ?7,500 per unit.
• 5% without ITC otherwise.
• Hotels can also opt for 18% with ITC by declaring their choice before the financial year starts. These changes will take effect from April 1, 2025, to ensure a smooth transition.
• Taxpayers under the composition levy scheme will be excluded from reverse charge GST on renting commercial property by unregistered persons to registered ones. Any earlier confusion on this matter since October 2024 will be resolved as is.
Other changes relating to goods and services
GST on Old and Used Vehicles:
• The GST rate on all old and used vehicles, including EVs, will increase from 12% to 18%.
• For specific vehicles like petrol cars with engines over 1200cc or longer than 4000mm, and diesel cars with engines over 1500cc or SUVs, the rate remains 18%.
• GST is only charged on the margin (difference between purchase and selling price) and doesn’t apply to unregistered sellers.
GST on ACC Blocks:
• ACC blocks with more than 50% fly ash will attract 12% GST under HS 6815.
No GST on Agriculturist Supplies:
• Fresh or dried pepper and raisins supplied by agriculturists won’t attract GST.
• Pre-Packaged and Labelled Goods:
• The definition of “pre-packaged and labelled” now includes retail items up to 25 kg or 25 liters, as per the Legal Metrology Act.
GST on Popcorn:
• Plain salted popcorn:
-5% GST if not pre-packaged and labelled.
-12% GST if pre-packaged and labelled.
• Caramel popcorn or popcorn with sugar (treated as confectionery): 18% GST.
• This is just a clarification to resolve past disputes, not a new tax.
Ground Clearance for Vehicles:
• Clarification on ground clearance-related rules applies from July 26, 2023, as per Notification No. 1/2017.
Exemption for RBI-Regulated Payment Aggregators:
• Payment aggregators regulated by RBI are exempt from GST under specific conditions, but this doesn’t cover payment gateways or other fintech services.
No GST on Penal Charges by Banks and NBFCs:
• Penal charges for non-compliance with loan terms are not subject to GST.
MEASURES FOR FACILITATION OF TRADE
1. Amendment in Schedule III of the CGST Act, 2017:
• From July 1, 2017, a new rule has been added to clarify that the supply of goods stored in a Special Economic Zone (SEZ) or Free Trade Warehousing Zone (FTWZ) to anyone before those goods are cleared for export or for sale to the Domestic Tariff Area (DTA) will not be considered as a supply of goods or services.
• This change makes transactions involving goods in SEZ/FTWZ similar to those in Customs bonded warehouses under GST.
2. The recommendations on the taxability of vouchers:
The GST Council has taken steps to resolve long-standing ambiguities around the taxation of vouchers:
(i) Legal Changes:Sections 12(4) and 13(4) of the CGST Act, 2017, and Rule 32(6) of the CGST Rules, 2017, will be removed to clarify the treatment of vouchers.
(ii) Clarifications Issued:
• Transactions involving vouchers will not be treated as a supply of goods or services under GST.
• When vouchers are distributed on a principal-to-principal basis, GST will not apply. However, if distributed on a principal-to-agent basis, GST will be charged on the commission, fee, or other amounts received by the agent.
• Services like advertising, co-branding, marketing, promotion, customization, technology support, or customer support linked to vouchers will attract GST on the amount paid for these services.
• Unredeemed vouchers (breakage) are not considered a supply under GST, so no GST is payable on income recorded for breakage.
• These changes aim to simplify and clarify voucher-related GST rules.
3. Issuance of clarifications through the circulars to remove ambiguity and legal disputes in certain issues.
GST Council’s clarifications and recommendations:
(i) Input Tax Credit (ITC) for E-Commerce Operators:
E-commerce operators (ECOs) don’t need to reverse ITC proportionally under Section 17(1) or 17(2) of the CGST Act, 2017, for supplies on which they pay tax under Section 9(5) of the CGST Act.
(ii) ITC for Goods Delivered at Supplier’s Place:
For Ex-Works contracts, if goods are delivered at the supplier’s business location (to the recipient or transporter) and ownership is transferred to the recipient at that point, the goods are considered “received” by the recipient. This allows the recipient to claim ITC as per Section 16(2)(b) of the CGST Act, 2017, subject to the conditions in Sections 16 and 17.
(iii) Late Fee for FORM GSTR-9C Filing:
• Clarification: A late fee under Section 47(2) of the CGST Act applies for delays in filing complete annual returns under Section 44, which includes both FORM GSTR-9 (Annual Return) and FORM GSTR-9C (Reconciliation Statement).
• Waiver for Past Years: For the years 2017-18 to 2022-23, late fees for filing FORM GSTR-9C will be waived (beyond the amount payable till the date of filing FORM GSTR-9), provided FORM GSTR-9C is submitted by 31st March 2025.
Amendments Related to Invoice Management System (IMS):
The GST Council recommended several changes to improve the functionality of the Invoice Management System (IMS):
• Generation of FORM GSTR-2B: Amendments will be made to section 38 of the CGST Act and rule 60 to create a legal framework for generating FORM GSTR-2B based on the actions taken by taxpayers in the IMS.
• Reversal of Input Tax Credit (ITC): Section 34(2) will be amended to specify that the recipient must reverse the ITC for credit notes, which helps reduce the supplier's output tax liability.
• Adjustment of Output Tax Liability: A new rule (67B) will be added to explain how a supplier can adjust their output tax liability using the credit note they issue.
• Filing of FORM GSTR-3B: FORM GSTR-3B for a given tax period will only be allowed to be filed once FORM GSTR-2B for that period is available on the portal, as per changes in section 39(1) of the CGST Act and rule 61.
OTHERS
• Track and Trace Mechanism: A new provision, Section 148A, will allow the government to introduce a Track and Trace Mechanism for certain commodities prone to tax evasion.
• Online Services to Unregistered Recipients: For online services like money gaming or OIDAR services provided to unregistered recipients, the supplier must include the recipient’s state name on the tax invoice. This state name will be considered the recipient's address for GST purposes.
• Section 17(5)(d) Amendment: The GST Council proposes changing "plant or machinery" to "plant and machinery," effective from July 1, 2017, to match the original intent.
• Section 107(6) Amendment: The pre-deposit for filing appeals related to penalties (without tax demand) will be reduced to 10% instead of 25%.
• Section 112(8) Insertion: A new provision will allow a 10% pre-deposit for penalty-only appeals before the Appellate Tribunal.
• Definition of 'Local Fund' and 'Municipal Fund': New explanation added to clarify definitions under the CGST Act.
• Input Services Distributor (ISD) Mechanism: Inter-state RCM transactions included in the ISD mechanism, with changes effective from April 1, 2025.
• Temporary Identification Number: New rule allows issuance of a temporary ID for non-registered persons making payments, with form updates.
• Composition Levy Taxpayers: Rule amended to let composition levy taxpayers modify their "category of registered person" via a new form.
• IGST Settlement: The GST Council approved recommendations to address IGST settlement issues, with changes due by March 2025.
• GSTAT Operational Rules: Proposed rules for GST Appellate Tribunal’s internal functioning to be finalized after Law Committee review.
• GST Compensation Restructuring: Extended deadline for restructuring GST compensation to June 30, 2025.
• Natural Disaster Levy: A Group of Ministers will propose a uniform policy on levies during natural disasters in Andhra Pradesh.
• The issue of whether charges collected by municipalities for granting FSI including additional FSI, chargeable to GST on reverse charge basis was brought up in the Council. The matter was deferred for further examination on the behest of the Central Government on the ground that this amount relates to Municipalities or local authority.
Note: The recommendations of the GST Council have been presented in this release containing major item of decisions in simple language for information of the stakeholders. The same would be given effect through the relevant circulars/ notifications/ law amendments which alone shall have the force of law.
Disclaimer: This material and the information contained herein is intended for clients and other Chartered Accountants to provide updates and is not an exhaustive treatment of such subject. We are not, by means of this material, rendering any professional advice or services. It should not be relied upon as the sole basis for any decision which may affect you or your business.
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