Key Recommendations from the 54th GST Council Meeting: Navigating the Latest Economic Changes
The 54th GST Council meeting has ushered in a series of significant recommendations, reflecting the current economic climate and aiming to refine the Goods and Services Tax (GST) landscape.
These recommendations cover a broad spectrum, including changes in tax rates, clarifications on classifications, and new mechanisms for improved compliance
Here is an in-depth look at the latest adjustments and their potential impacts.
Changes and Clarifications in GST Tax Rates
Adjustments in GST Rates for Goods
Namkeens and Savoury Products
The GST rate for extruded or expanded savoury products, which include items like Namkeens and Bhujia, is set to be reduced from 18% to 12%. This change brings these products in line with other ready-to-consume snacks, making them more affordable. However, unfried or uncooked snack pellets, which are manufactured through extrusion, will continue to attract a lower GST rate of 5%. Importantly, this new rate of 12% will apply only prospectively.
Cancer Drugs
A notable reduction in GST rates has been proposed for cancer drugs such as Trastuzumab Deruxtecan, Osimertinib, and Durvalumab, decreasing from 12% to 5%. This adjustment alleviates the financial burden on patients
Metal Scrap
The introduction of the Reverse Charge Mechanism (RCM) for the supply of metal scrap from unregistered to registered persons marks a significant shift. Suppliers must now register once they exceed the threshold limit, and recipients will be responsible for tax payments even if the supplier is below the threshold. Also, a 2% TDS will apply to metal scrap supplies between registered businesses.
Roof Mounted Package Unit (RMPU) Air Conditioning Machines
The classification of Roof Mounted Package Unit (RMPU) Air Conditioning Machines for Railways under HSN 8415 will attract a GST rate of 28%.
Car and Motorcycle Seats
Car seats will see an increase in GST from 18% to 28%, aligning with the rate applied to motorcycle seats. This change will be implemented prospectively to standardise tax rates across vehicle seat categories.
Updates on GST for Services
1. Life and Health Insurance
A Group of Ministers (GoM) has been established to review GST issues related to life and health insurance. The GoM, consisting of representatives from various states, is expected to submit its findings by the end of October 2024.
2. Helicopter Passenger Transport
The GST rate for passenger transport by helicopters on a seat-share basis will be set at 5%, while chartered helicopter services will maintain an 18% GST rate.
3. Flying Training Courses
Approved flying training courses conducted by DGCA-approved Flying Training Organizations (FTOs) will be exempt from GST. This exemption aims to support aviation training and reduce the cost burden on aspiring pilots.
4. Research and Development Services
The GST Council has recommended exempting research and development services provided by government entities or notified institutions using government or private grants. Past transactions will be regularised on an ‘as is where is’ basis.
5. Preferential Location Charges (PLC)
PLC, when paid as part of the consideration for construction services before the issuance of a completion certificate, will be considered part of the composite supply. This means it will be eligible for the same tax treatment
6. Affiliation Services
Affiliation services provided by educational boards like CBSE will be taxable. However, services from State/Central boards to government schools will be exempted. Past issues between 01.07.2017 and 17.06.2021 will be regularised. Additionally, universities' affiliation services to constituent colleges will attract an 18% GST rate.
7. Import of Services by Branch Offices
Services imported by foreign airline branch offices from related establishments outside India, when provided without consideration, will be exempt from GST. Past periods will also be regularised.
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8. Renting of Commercial Property
Renting of commercial property by unregistered persons to registered entities will come under the Reverse Charge Mechanism (RCM) to prevent revenue leakage
9. Ancillary Services Provided by GTA
Ancillary or intermediate services provided by Goods Transport Agencies (GTA) will be considered part of a composite supply if invoiced together with the transportation service. Separate invoicing for these services will not be treated as a composite supply.
Waivers of Interest and Penalties: New Guidelines for Tax Demands
The GST Council has endorsed the insertion of Rule 164 into the CGST Rules, 2017, which outlines the procedure and conditions for waiving interest or penalties on tax demands under Section 73 of the CGST Act for the financial years 2017-18, 2018-19, and 2019-20. This measure is guided by Section 128A of the CGST Act.
Notably, the Council has proposed that Section 128A be officially notified with effect from November 1, 2024.
To avail of these waivers, registered persons must make their tax payments by March 31, 2025. Additionally, the Council has suggested issuing a circular to address various issues related to the waiver application process, ensuring clarity and uniformity in its implementation.
Implementing New Sub-Sections for Input Tax Credit Rectifications
The GST Council has recommended the early notification of Sections 118 and 150 of the Finance (No. 2) Act, 2024. These sections introduce sub-sections (5) and (6) into Section 16 of the CGST Act, 2017, with retrospective effect from July 1, 2017.
A special rectification procedure is proposed for taxable persons who received demands under Sections 73, 74, 107, or 108 due to incorrect availing of the input tax credit but where such credits are now permissible under the new provisions. The Council also suggests issuing a circular to elucidate the new procedural requirements and address any related queries.
Streamlining IGST Refunds for Exporters
To address issues related to IGST refunds on exports, the GST Council has recommended clarifying that if IGST and compensation cess on inputs are paid after initially importing them under exemption notifications, and the Bill of Entry is reassessed accordingly, refunds on IGST paid on exports will not violate Rule 96(10) of the CGST Rules.
Moreover, to alleviate difficulties faced by exporters due to restrictions imposed by Rule 96(10) and Rule 89(4A) & (4B), the Council has proposed the prospective omission of these rules. This change aims to simplify and expedite the refund process for exports.
Issuance of Circulars for Clarity and Dispute Resolution
The GST Council has recommended issuing circulars to clear up ambiguities and resolve disputes on several fronts:
Other Regulatory Adjustments
In addition to the aforementioned measures, the Council has recommended several other amendments to the CGST Rules, 2017. These adjustments are expected to further refine the regulatory framework, ensuring better compliance and operational efficiency for businesses.
Other Noteworthy Measures
1. B2C E-Invoicing Pilot
Following successful B2B implementation, a pilot program for B2C e-invoicing will be launched. This initiative aims to enhance business efficiency
2. Invoice Management System and New Ledgers
Enhancements to the GST return architecture will introduce new ledgers, including a Reverse Charge Mechanism ledger and an Input Tax Credit Reclaim ledger. The Invoice Management System (IMS) will allow taxpayers to manage their invoices more effectively, reducing errors and improving reconciliation.
Looking Ahead
In the recent post-GST Council meeting press conference, Finance Minister Nirmala Sitharaman highlighted several significant developments that mark a promising path forward for India's GST framework.
The projected cess collection until March 2026 is set to reach ₹8.66 lakh crore, with an anticipated surplus of around ₹40,000 crore after settling outstanding loans. This financial stability is a testament to the robust and evolving GST system.
Looking ahead, the Council has proactively addressed the future of the compensation cess. Plans are underway to form a Group of Ministers (GoM) to explore its future role, including the potential for renaming or repurposing the cess after March 2026. This forward-thinking approach demonstrates a commitment to refining and enhancing the GST regime.
As we stated, the introduction of the Business-to-Customer (B2C) GST invoicing system, effective October 1, marks a significant step toward streamlining and modernising the invoicing process. The increase in GST on car seats from 18% to 28% reflects the Council’s ongoing efforts to balance tax policies.
Furthermore, the establishment of a new committee to address the negative IGST balance and recover excess IGST disbursed to states underscores a dedicated effort to resolve existing issues and improve fiscal management