Recommendations during 54th GST Council Meeting: Tax Rate Cuts, B2C E-Invoicing Pilot, Compliance Reforms, Clarifications on Confusions, and the Future of IMS
The 54th meeting of the GST Council brought forth significant updates that aim to streamline tax procedures, improve compliance, and offer relief to both businesses and individuals. Key decisions ranged from the introduction of new tax rates for certain goods and services to simplified refund processes for exporters and a pilot program for B2C e-Invoicing. These changes reflect the government's ongoing commitment to enhancing GST efficiency and addressing the practical needs of taxpayers.
The GST Council inter-alia made the following recommendations relating to changes in GST tax rates, provide relief to individuals, measures for facilitation of trade and measures for streamlining compliances in GST.
1. Changes/Clarifications in GST Tax Rates:
GOODS
Namkeens like Bhujia at 12%, while Unfried Snack Pellets Stay at 5% – Ab Bhujia Khao Maze Se!
• The GST rate on extruded or expanded savoury food products like namkeens, bhujia, and mixtures, which are ready for consumption and pre-packaged, has been reduced from 18% to 12%. Now, enjoy your favorite bhujia guilt-free with lower taxes!
• The GST rate of 5% will continue for unfried or uncooked snack pellets manufactured via extrusion.
• The new 12% GST rate on extruded or expanded products (other than snack pellets) under HS code 1905 90 30 will apply prospectively.
Big Relief for Patients: GST on Cancer Drugs Slashed to 5%
• The GST rate on critical cancer drugs, including Trastuzumab Deruxtecan, Osimertinib, and Durvalumab, has been reduced from 12% to 5%, providing much-needed relief for patients battling cancer.
Another Addition to Reverse Charge: Metal Scrap Now Included!
• Reverse Charge Mechanism (RCM) has been introduced for the supply of metal scrap by unregistered persons to registered entities. Even if the supplier is under the threshold limit, the recipient must pay the tax under RCM.
• A TDS of 2% will apply to B2B supply of metal scrap by registered persons.
Clarifying Confusions: RMPU Air Conditioning and Car Seats GST Rates
• It has been clarified that Roof Mounted Package Unit (RMPU) Air Conditioning Machines for Railways will be classified under HSN 8415, attracting a GST rate of 28%.
• Additionally, car seats will continue to be classified under HSN 9401, with the GST rate increasing from 18% to 28% prospectively. This brings uniformity, as motorcycle seats already attract a 28% GST rate.
SERVICES
GST Council Recommends GoM for Life & Health Insurance Review
• A Group of Ministers (GoM) has been proposed to examine the GST issues related to life and health insurance. The GoM will include representatives from states like Bihar, UP, West Bengal, Karnataka, Kerala, and more. The report is expected by the end of October 2024.
Helicopter Rides on Seat Share Basis Now at 5% GST!
• The GST rate for passenger transport by helicopters on a seat share basis has been reduced to 5%. Additionally, past GST will be regularized on an "as is where is" basis. However, chartered helicopter services will continue to attract an 18% GST rate.
GST Exemptions: Flying Training Courses and R&D Services
• Approved flying training courses conducted by DGCA-approved Flying Training Organizations (FTOs) are exempt from GST, as clarified by a circular.
• The supply of research and development services by government entities, research associations, universities, colleges, or institutions (notified under section 35 of the Income Tax Act, 1961) using government or private grants will also be exempt from GST. Past demands will be regularized on an "as is where is" basis.
Real Estate Update: Preferential Location Charges (PLC) Now Clarified!
• Location charges or Preferential Location Charges (PLC) paid for residential, commercial, or industrial construction services before the completion certificate are now considered part of a composite supply. As they are naturally bundled with the construction service, PLC will receive the same tax treatment as the main construction service.
Clarifications on GST for Affiliation Services: What's Taxable and What's Exempt
• Affiliation services provided by educational boards like CBSE will continue to be taxable. However, affiliation services provided by State/Central educational boards, educational councils, and similar bodies to government schools will be exempt from GST prospectively. The GST for the period between 01.07.2017 and 17.06.2021 will be regularized on an "as is where is" basis.
• It has also been clarified that affiliation services provided by universities to their constituent colleges do not fall under the exemption given to educational institutions in notification No. 12/2017-CT(R) dated 28.06.2017. These services will attract a GST rate of 18%.
Service Import by Foreign Airlines Branches Now Exempt!
• Services imported by a foreign airline’s branch office from a related person or its overseas establishment, when made without consideration, are now exempt from GST. The past period will be regularized on an "as is where is" basis.
Renting of Commercial Property under Reverse Charge for Unregistered Landlords
• Renting of commercial properties by unregistered persons to registered entities will now fall under the Reverse Charge Mechanism (RCM) to prevent revenue leakage and ensure tax compliance.
GTA Services: Composite Supply for Ancillary Services Clarified
• When ancillary services like loading/unloading, packing, transshipment, or temporary warehousing are provided by a Goods Transport Agency (GTA) during transportation, and a consignment note is issued, these will be treated as part of a composite supply of transportation services. If such services are invoiced separately, they will not be treated as composite supplies.
GST Updates on Film Distribution and Electricity Supply Services
• Film Distribution GST Liability: GST liability for film distributors or sub-distributors acting on a principal basis to acquire and distribute films before 01.10.2021 will be regularized on an "as is where is" basis.
• Exemption for Electricity Supply Services: Services such as application fees for electricity connections, meter rental charges, testing fees, and labor charges for shifting service lines will be exempt from GST when provided as part of a composite supply by electricity transmission and distribution utilities. GST for the past period will also be regularized on an "as is where is" basis.
2. Measures for facilitation of trade:
Waiver of Interest and Penalty on GST for FY 2017-18, 2018-19, and 2019-20
The GST Council has recommended a new rule (Rule 164) to be added to the CGST Rules, 2017. This rule will outline the procedure and conditions for waiving interest or penalties related to GST tax demands for the financial years 2017-18, 2018-19, and 2019-20.
Here’s what you need to know:
• The rule applies to tax demands under section 73 of the CGST Act for the mentioned financial years.
• Registered taxpayers can benefit from this waiver if they follow the new procedure and meet the conditions outlined.
• Taxpayers have until 31st March 2025 to make the necessary tax payments to qualify for this waiver.
• The GST Council will issue a circular to provide more clarity on how taxpayers can take advantage of this waiver.
• Additionally, section 146 of the Finance (No. 2) Act, 2024, which brings in section 128A into the CGST Act (allowing this waiver), will come into effect from 1st November 2024.
This means if you have outstanding tax demands for these years, there is a chance to settle them without paying extra interest or penalties, provided you act by the deadline.
New Rules for ITC Rectification Under GST
The GST Council is introducing new rules (sub-sections 5 and 6 in section 16) retroactive from 1st July 2017 to help businesses correct wrong ITC claims:
• Taxpayers who received orders for wrong ITC claims (under sections 73, 74, 107, or 108) can now claim ITC under the new rules, as long as they haven’t appealed the order.
• A special procedure will be notified under section 148 for rectifying these orders.
• The changes from sections 118 and 150 of the Finance Act, 2024, will be implemented soon, with a circular providing details on the process.
This gives businesses a chance to fix past ITC errors easily.
Simplified Refund Process for Exporters: Key Amendments in GST Rules
The GST Council has made important amendments to ease IGST refund procedures for exporters:
• Clarification on IGST Refunds: Exporters who initially imported inputs without paying IGST and compensation cess under Notifications 78/2017 and 79/2017 can still claim refunds if they later pay the IGST and compensation cess with interest. They must get their Bill of Entry reassessed by Customs authorities. These refunds will not violate rule 96(10) of the CGST Rules.
• Simplified Refunds for Exporters: To address the challenges exporters face with refund restrictions under rule 96(10), rule 89(4A), and rule 89(4B), the Council has recommended removing these rules prospectively. This will make the refund process faster and easier for exporters who used concessional/exemption benefits on inputs.
In summary, these changes simplify the process and reduce barriers for exporters seeking IGST refunds on inputs.
3. Key Clarifications and Amendments Recommended by the GST Council
The GST Council recommended issuing circulars to clear up confusion in the following areas due to varied interpretations:
• Advertising Services for Foreign Entities: Clarification on the Place of Supply for advertising services provided by Indian companies to foreign entities.
• Input Tax Credit on Demo Vehicles: Clarification on whether vehicle dealers can claim Input Tax Credit on demo vehicles used for display or test drives.
• Data Hosting Services for Foreign Clients: Clarification on the Place of Supply for data hosting services provided by Indian companies to cloud computing providers located outside India.
Additionally, the Council recommended amendments to some other provisions of the CGST Rules, 2017, to streamline compliance.
4. Other measures:
(a) B2C E-invoicing:
• The GST Council recommended a pilot for B2C e-Invoicing, aiming to improve business efficiency and allow customers to verify invoice reporting in GST returns, starting voluntarily in selected sectors and states.
(b) Invoice Management System and new ledgers:
• The GST Council discussed enhancements to the GST return system, including the introduction of RCM and ITC Reclaim ledgers and an Invoice Management System (IMS), with taxpayers able to declare their opening balances by 31st October 2024. The IMS will help reduce ITC errors and improve reconciliation by allowing taxpayers to accept, reject, or keep invoices pending. You can read more details by following this link.
GST Advisory on the Invoice Management System (IMS) (aagamshahca.com)
The rate changes and reductions proposed during the 54th GST Council meeting are always a welcome relief, providing much-needed support to various sectors. However, the introduction of new systems like the Invoice Management System (IMS) will be a key area to watch. While it promises to reduce errors and improve reconciliation, it remains to be seen whether IMS will be a boon or bane for businesses in practice. As we move forward, these changes could either streamline compliance and boost efficiency or pose new challenges. Only time will tell how effectively these measures balance both the critical and positive aspects of GST administration.
You can download the Council meeting press release from this link.
Press Release Details:Press information Bureau (pib.gov.in)
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.
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.
