55th GST Council Meeting Highlights

The GST Council made several recommendations, including changes to GST tax rates, relief for individuals, steps to make trade easier, and measures to simplify GST compliance.

 

Simplified Explanation of GST Changes on Goods:

1. Reduced GST on Fortified Rice Kernel (FRK): 

   The GST rate on Fortified Rice Kernel (FRK), classified under HSN code 1904, is being reduced to 5%. This helps make fortified rice more affordable.

2. GST Exemption for Gene Therapy: 

   Gene therapy, a medical treatment, will now be completely exempt from GST, making it more accessible and affordable for patients.

3. IGST Exemption for LRSAM System Parts: 

   Parts, tools, and equipment used in making or assembling the Long Range Surface-to-Air Missile (LRSAM) system are now exempt from IGST. This change, under Notification 19/2019-Customs, supports the defence sector.

4. Lower Compensation Cess for Merchant Exporters: 

   A special reduced Compensation Cess of 0.1% will apply to supplies made to merchant exporters. This matches the GST rate on such supplies and supports exporters.

5. IGST Exemption for IAEA Inspection Equipment: 

   Equipment and consumable samples imported by the International Atomic Energy Agency (IAEA) inspection teams will now be exempt from IGST, provided certain conditions are met.

6. Concessional GST for Food Inputs in Government Programs: 

   A 5% concessional GST rate will continue to apply to food inputs classified under HSN codes 19 or 21. These are used in food preparations meant for free distribution to economically weaker sections through government programs, subject to existing conditions.

 

Simplified Explanation of GST Changes on Services 

1. Sponsorship Services Now Under Forward Charge: 

   Sponsorship services provided by companies (body corporates) will now fall under the Forward Charge Mechanism. This means the company providing the sponsorship will be responsible for paying the GST instead of the recipient.

 

2. No GST on Contributions to Motor Vehicle Accident Fund: 

   General insurance companies will not have to pay GST on the contributions they make from third-party motor vehicle insurance premiums to the Motor Vehicle Accident Fund. This fund helps provide compensation and cashless treatment for victims of road accidents, including hit-and-run cases.

 

3. Hotel GST Based on Actual Value of Accommodation: 

   - The old "declared tariff" definition will be removed. Instead, the GST rate on hotel services will depend on the actual value of accommodation provided: 

     - 18% GST with Input Tax Credit (ITC) if the accommodation value in the previous financial year exceeded ₹7,500 per unit. 

     - 5% GST without ITC if the value was ₹7,500 or less. 

   - Hotels can also choose to pay 18% GST with ITC on restaurant services by declaring this choice before the financial year begins or upon registration. 

   - These changes will take effect from April 1, 2025, to avoid any transition issues.

4. Changes in Reverse Charge for Commercial Property Rent: 

   - Taxpayers registered under the Composition Levy Scheme are now excluded from the rule that requires reverse charge GST for renting commercial or immovable property (except residential) by an unregistered person to a registered person. 

   - The rule was introduced on October 8, 2024, and became effective from October 10, 2024. The government will regularise transactions during this period without any additional changes ("as is where is"). 

 

Simplified Explanation of Other GST Changes on Goods and Services 

1. Higher GST on Old and Used Vehicles: 

   - GST rate on all old and used vehicles, including EVs (electric vehicles), is increased from 12% to 18%, except for: 

     - Old petrol vehicles with engine capacity 1200 cc+ and length 4000 mm+. 

     - Old diesel vehicles with engine capacity 1500 cc+ and length 4000 mm+, including SUVs. 

   - GST applies only on the margin of the supplier (difference between purchase and selling price or depreciated value if claimed), not on the full value. 

   - GST does not apply to unregistered persons. 

2. GST Rate on ACC Blocks with Fly Ash: 

   - Autoclaved Aerated Concrete (ACC) blocks containing over 50% fly ash are now classified under HS 6815 and will attract 12% GST. 

3. No GST on Certain Agricultural Supplies: 

   - Fresh or dried pepper and raisins, when supplied by farmers (agriculturists), are exempt from GST. 

4. Definition of ‘Pre-Packaged and Labelled’ Updated: 

   - Now includes all goods intended for retail sale in packs of 25 kg/liters or less. These must meet the labelling requirements under the Legal Metrology Act and its rules. 

5. GST on Popcorn: 

   - Plain popcorn with salt/spices: 

     - 5% GST for loose/unpackaged. 

     - 12% GST for pre-packaged and labelled. 

   - Caramel or sweet popcorn (classified as sugar confectionery): 

     - Attracts 18% GST under HS code 1704 90 90. 

   - This clarification resolves disputes over tax rates previously applied. 

 

6. Clarification on Ground Clearance Rule: 

   - For vehicles, the rule about ground clearance, as mentioned in Notification No. 1/2017-Compensation Cess, applies from July 26, 2023. 

7. Exemption for RBI-Regulated Payment Aggregators: 

   - Payment aggregators regulated by the RBI qualify for GST exemption under entry No. 34 of Notification No. 12/2017-CT(R). 

   - The exemption does not cover payment gateways or fintech services that don’t involve direct settlement of funds. 

8. No GST on Loan Penal Charges: 

   - Banks and NBFCs (Non-Banking Financial Companies) do not need to pay GST on penal charges (like late payment fees) collected from borrowers for not following loan terms. 

 

Simplified Explanation of GST Measures for Trade Facilitation 

1. Changes to Schedule III of the CGST Act, 2017 (Effective from July 1, 2017): 

   - A new clause is being added to clarify that goods stored in Special Economic Zones (SEZ) or Free Trade Warehousing Zones (FTWZ) and supplied to someone (before export or domestic clearance) will not be treated as supply of goods or services under GST. 

   - This aligns the treatment of goods in SEZ/FTWZ with the existing GST rules for goods stored in Customs bonded warehouses.

2. Clarity on GST for Vouchers: 

   - Sections 12(4), 13(4) of the CGST Act and Rule 32(6) of CGST Rules will be removed to address confusion about vouchers under GST. 

   - Key clarifications: 

     - Transactions involving vouchers are not considered a supply of goods or services under GST. 

     - Principal-to-principal voucher distribution is not taxable under GST. However, if distributed on a principal-to-agent basis, any fees or commissions charged by the agent will be taxed. 

     - Services like advertising, co-branding, or marketing related to vouchers will attract GST based on the service charges. 

     - Unredeemed vouchers (breakage) will not be treated as a supply, and no GST will apply to such income. 

3. Circulars to Resolve Ambiguities and Disputes: 

   The GST Council recommends issuing circulars to clarify the following: 

   - Input Tax Credit (ITC) Reversal for E-Commerce Operators: 

     - E-commerce operators (ECOs) paying tax under Section 9(5) of the CGST Act do not need to reverse ITC proportionally under Sections 17(1) or 17(2). 

   - ITC on Ex-Works Contracts: 

     - If goods are delivered at the supplier’s location and ownership transfers at that point (Ex-Works terms), the recipient is considered to have "received" the goods and can claim ITC under Section 16(2)(b), subject to other conditions. 

   - Late Fee for GSTR-9C Filings: 

     - Late fees under Section 47(2) will apply to delays in filing annual returns (GSTR-9 and GSTR-9C). 

     - For 2017-18 to 2022-23, late fees for delayed filing of GSTR-9C (beyond the GSTR-9 deadline) will be waived if GSTR-9C is filed by March 31, 2025.

 

Measures to Simplify GST Compliance 

1. Introducing a System for Tracking and Tracing Certain Goods 

   A new section (Section 148A) is being added to the CGST Act, 2017. This section gives the government the authority to create a "Track and Trace Mechanism" for specific goods that are more prone to tax evasion. 

   - How it works: Goods (or their packaging) will have a *Unique Identification Marking*. 

   - Purpose: This will help monitor these goods throughout their supply chain, ensuring better control and reducing tax evasion. 

   - Impact: It creates a legal framework to develop and enforce this system.

2. Clarifying How to Record Details for Online Services 

   When providing online services (like online gaming or OIDAR services) to customers who are not registered under GST: 

   - The supplier must clearly record the State name of the recipient on the tax invoice. 

   - This recorded State name will be considered the "address on record" for the recipient as per Section 12(2)(b) of the IGST Act, 2017 and Rule 46(f) of the CGST Rules, 2017. 

   - Why it matters: Correctly declaring the recipient’s State and the place of supply ensures proper tax calculation and compliance. 

 

Simplified explanation of the changes in law and procedure under the CGST Act:

1. Amendment in Section 17(5)(d) of the CGST Act:

The government is changing the wording from "plant or machinery" to "plant and machinery" in section 17(5)(d) of the CGST Act. This change will take effect retroactively from July 1, 2017, to ensure that the meaning aligns with the explanation in section 17 of the Act.

2. Amendment in Sections 107 and 112 of the CGST Act:

   - The pre-deposit required for filing an appeal will be reduced from 25% to 10% if the appeal is only about a penalty (without tax).

   - A similar change will apply to appeals before the Appellate Tribunal as well.

3. Amendment in Section 2(69) of the CGST Act:

The government is adding an explanation to clarify the definitions of "Local Fund" and "Municipal Fund" under section 2(69) of the Act.

4. Amendment in Input Services Distributor (ISD) Mechanism:

The ISD mechanism will now cover inter-state Reverse Charge Mechanism (RCM) transactions under the CGST Act and IGST Act, starting from April 1, 2025. This will also affect related rules and provisions.

5. Temporary Identification Number for Non-Registered Persons:

A new rule (Rule 16A) will allow tax officers to grant a temporary identification number to individuals or entities that are not required to be registered but need to make certain payments under the CGST Act.

 

6. Amendment in the Category of Registered Person for Composition Scheme:

A change will allow taxpayers who have opted for the Composition Scheme to modify their "category of registered person" through the GST portal using FORM GST REG-14.

7. Amendments Related to Invoice Management System (IMS):

   - Section 38 of the CGST Act and Rule 60 of the CGST Rules will be amended to introduce a legal framework for generating FORM GSTR-2B, which is based on actions taken by taxpayers in the IMS.

   - Section 34(2) will be amended to require the reversal of input tax credit for credit notes issued by the supplier, which affects the supplier's tax liability.

   - A new rule (Rule 67B) will provide details on how suppliers should adjust their output tax liability against credit notes.

   - FORM GSTR-3B can only be filed after FORM GSTR-2B for the same period is available.

These changes aim to clarify processes and make the tax system more streamlined and efficient.

 

Additional Decisions Taken by the GST Council: 

1. Improving IGST Settlement Process: 

   The GST Council agreed with suggestions from a committee of officers about resolving issues related to Integrated GST (IGST) settlement raised by various states. The committee was instructed to complete the necessary changes by March 2025. 

2. Making GSTAT Operational: 

   The Council reviewed rules for how the GST Appellate Tribunal (GSTAT) will function internally. These rules will be officially approved after being checked by the Law Committee. Once finalized, these rules will help make GSTAT fully functional. 

3. GST Compensation Restructuring: 

   The Council extended the deadline for a special Group of Ministers (GoM) to work on restructuring GST Compensation. They now have time until 30th June 2025 to complete their task. 

4. Policy for Natural Disasters: 

   Based on a request from Andhra Pradesh, the Council decided to create a special Group of Ministers to study and recommend a uniform policy for imposing taxes or levies during natural disasters in any state. 

5. GST on Charges for Additional FSI by Municipalities: 

   The Council discussed whether GST should apply (on a reverse charge basis) to fees collected by municipalities for providing extra Floor Space Index (FSI). The Central Government suggested that the issue be examined further, as these charges primarily involve municipalities or local authorities. 

 

Important Note: 

This summary provides the key decisions in simple language for stakeholders' understanding. However, the above decisions for "55th GST Council Meeting Highlights" will take legal effect only after the necessary circulars, notifications, or law amendments are issued.