December 23, 2024

Changes In GST Rates And Exemptions

The 55th GST Council Meeting introduced significant changes to GST rates and exemptions. These updates are aimed at reducing tax burdens, clarifying ambiguities, and providing support across various sectors such as healthcare, defence, and hospitality. Below is a detailed account of these changes:

Goods: New Rates And Exemptions

1. Fortified Rice Kernel (FRK):
   The GST rate on the Fortified Rice Kernel, classified under HSN 1904, has been reduced to 5%. This step aligns with the government’s focus on nutritional welfare, particularly under public schemes.
2. Gene Therapy:
   GST on gene therapy has been fully exempted, boosting affordability and encouraging advanced healthcare innovation in India.
3. LRSAM Systems:
   The Integrated Goods and Services Tax (IGST) exemption on systems, sub-systems, equipment, parts, tools, and software used for the assembly or manufacture of Long-Range Surface-to-Air Missile (LRSAM) systems under Notification 19/2019-Customs has been extended.
4. Supplies to Merchant Exporters:
   The rate of Compensation Cess on supplies to merchant exporters has been reduced to 0.1%, aligning it with the GST rate on similar supplies to enhance export competitiveness.
5. Equipment for International Atomic Energy Agency (IAEA):
   Subject to specific conditions, imports of equipment and consumable samples for the IAEA’s inspection teams have been exempted from IGST, supporting international collaboration and compliance.
6. Food Inputs for Free Distribution:
   The concessional 5% GST rate on food inputs under HSN codes 19 and 21, intended for preparations distributed freely to economically weaker sections under government programmes, will continue, subject to the existing conditions.
7. Old and Used Vehicles:
   GST rates on old and used vehicles, including electric vehicles (EVs), have been increased from 12% to 18% for certain categories, except for:
   • Old and used petrol vehicles with an engine capacity of 1,200 cc or more and lengths exceeding 4,000 mm.
   • Diesel vehicles with an engine capacity of 1,500 cc or more and lengths exceeding 4,000 mm.
     GST is applicable only on the margin of the supplier (difference between purchase price and selling price) and excludes unregistered persons.
8. Specific Commodity Clarifications:
   • Autoclaved Aerated Concrete Blocks (ACC): Blocks with over 50% fly ash content will attract 12% GST under HSN 6815.
   • Pepper and Raisins: Fresh or dried pepper and raisins supplied by agriculturists will not attract GST.
   • Ready-to-Eat Popcorn: Popcorn mixed with salt and spices attracts 5% GST if not pre-packaged and labelled, and 12% GST if it is pre-packaged. Popcorn mixed with sugar (e.g., caramel popcorn) falls under confectionery (HSN 1704) and attracts 18% GST.
9. Pre-Packaged and Labelled Goods:
   The definition has been revised to include all commodities intended for retail sale, containing up to 25 kg or 25 litres, and bearing labels under the Legal Metrology Act.

Services: Sector-Specific Updates

1. Motor Vehicle Accident Fund Contributions:
   Contributions made by general insurance companies from third-party motor vehicle premiums to the Motor Vehicle Accident Fund are now exempt from GST. This fund provides compensation and cashless treatment for road accident victims.
2. Sponsorship Services:
   Sponsorship services provided by corporate bodies have been brought under the Forward Charge Mechanism, simplifying tax compliance.
3. Restaurant Services in Hotels:
   GST on restaurant services provided in hotels will now be based on the actual value of supply in the previous financial year:
   • 18% with Input Tax Credit (ITC) if the value of supply exceeds ₹7,500 per accommodation unit in the preceding year.
   • 5% without ITC if the value is below this threshold.
     Hotels can opt to pay 18% GST with ITC by declaring their intent before the start of the financial year. These changes take effect from 1st April 2025.
4. Rental Services:
   Taxpayers under the Composition Levy Scheme will no longer face reverse charge GST on renting commercial property by unregistered persons.
5. Bank Penal Charges:
   Penal charges levied by banks and NBFCs for non-compliance with loan terms are clarified to be outside the scope of GST.

Vouchers: Clear Guidelines Introduced

The Council addressed ambiguities around the taxability of vouchers, offering the following clarifications:

• Transactions involving vouchers will not be treated as a supply of goods or services.
• Distribution of vouchers on a principal-to-agent basis is taxable, but on a principal-to-principal basis, it is exempt.
• Associated services such as marketing, customisation, or customer support for vouchers will be taxed based on the value of these services.
• Unredeemed vouchers (breakage): No GST is payable on income booked for unredeemed vouchers.

Measures For Trade Facilitation

The 55th GST Council Meeting focused on simplifying trade processes and reducing ambiguities in GST compliance. Several key recommendations were made to address legal uncertainties and streamline procedures for businesses.

1. Clarification on the Taxability of Vouchers

To resolve longstanding ambiguities regarding vouchers, the GST Council made the following clarifications:

• Not Considered Supply: Transactions involving vouchers are neither a supply of goods nor services.
• Principal-to-Agent Basis: When vouchers are distributed through an agent, the agent’s commission or other fees are taxable under GST.
• Principal-to-Principal Basis: Distribution of vouchers on a principal-to-principal basis is not subject to GST.
• Associated Services Taxable: Services related to vouchers, such as marketing, customisation, or co-branding, will attract GST on the value of the services.
• Unredeemed Vouchers (Breakage): Income from unredeemed vouchers will not attract GST, as these are not considered a supply.

2. Supply Of Goods In SEZs And FTWZs

The Council recommended amending Schedule III of the CGST Act, 2017, to ensure that supplies of goods stored in Special Economic Zones (SEZs) or Free Trade Warehousing Zones (FTWZs) are not treated as the supply of goods or services. This applies to goods that are warehoused before being cleared for export or use in the domestic market.

3. Late Fee Waivers For GSTR-9C Filings

To reduce compliance burdens, the Council proposed waiving late fees for filing FORM GSTR-9C (Reconciliation Statement) for the years 2017–18 to 2022–23. Key points include:

• The waiver applies if GSTR-9C is filed by 31st March 2025.
• Excess late fees already paid will be waived for delayed filing beyond the due date of GSTR-9.
• Late fees for delayed submission of GSTR-9C under Section 47(2) of the CGST Act will still apply if the forms are filed after 31st March 2025.

4. Proportional Reversal Of Input Tax Credit (ITC)

The Council clarified that e-commerce operators (ECOs) are not required to proportionally reverse ITC under Sections 17(1) or 17(2) for supplies on which they are liable to pay GST under Section 9(5).

5. Ex-Works Deliveries And Input Tax Credit

For Ex-Works contracts (where goods are delivered to the recipient or transporter at the supplier’s location), the Council clarified the following:

• The goods will be treated as “received” by the recipient under Section 16(2)(b) of the CGST Act, 2017.
• The recipient can claim ITC for these goods, provided all other conditions under Sections 16 and 17 are met.

6. Place Of Supply For Online Services

The Council provided specific rules for suppliers of online services, such as Online Information and Database Access or Retrieval (OIDAR) services and online gaming. Key guidelines include:

• Suppliers must record the state name of unregistered recipients on tax invoices.
• The state name will be treated as the address on record for determining the place of supply under Section 12(2)(b) of the IGST Act, 2017.

7. Issuance Of Clarifications On Ambiguous Issues

To reduce legal disputes and ensure uniformity in interpretation, the Council proposed issuing circulars on the following:

• Reversal of ITC by ECOs: A circular will clarify that e-commerce operators do not need to reverse ITC proportionally for supplies under Section 9(5).
• Eligibility of ITC in Ex-Works Contracts: A circular will affirm that goods delivered to a recipient at the supplier’s premises are considered received for ITC purposes.

Measures For Streamlining Compliances In GST

The GST Council introduced several measures to streamline compliance, improve traceability, and align legal provisions with the evolving needs of businesses. These updates aim to make GST filing and adherence simpler and more efficient.

1. Track And Trace Mechanism

A new provision will be inserted into the CGST Act, 2017, under Section 148A, enabling the government to enforce a Track and Trace Mechanism for specified goods prone to evasion.

• The system will use a Unique Identification Marking for goods or their packaging, providing a legal framework for tracking commodities throughout the supply chain.

2. Amendment To Section 17(5)(d): ITC On Plant And Machinery

To align with the intent of the provision, the Council recommended amending Section 17(5)(d) of the CGST Act, 2017.

• The phrase “plant or machinery” will be replaced with “plant and machinery” retrospectively from 1st July 2017, ensuring a consistent interpretation as defined in the section’s Explanation.

3. Pre-Deposit Amount For Filing Appeals

To provide relief to taxpayers, changes were recommended for the pre-deposit amount required for filing appeals:

• For cases involving only penalties (without tax demand), the pre-deposit amount for appeals to:
  • Appellate Authority: Reduced to 10% (from 25%).
  • Appellate Tribunal: Fixed at 10% of the penalty amount.

4. Temporary Identification Numbers For Non-Registered Persons

A new Rule 16A will be added to the CGST Rules, 2017, allowing tax officers to generate Temporary Identification Numbers (TIN) for persons not liable for registration but required to make payments under Rule 87(4).

• FORM GST REG-12 will also be modified to incorporate this provision.

5. Invoice Management System (IMS) Enhancements

The GST Council recommended several updates to improve the functionality of the Invoice Management System (IMS):

• Amendments to Section 38 of the CGST Act, 2017, and Rule 60 of the CGST Rules, 2017, will create a legal framework for generating FORM GSTR-2B based on taxpayer actions in IMS.
• Section 34(2) of the CGST Act will require recipients to reverse ITC linked to credit notes, allowing suppliers to adjust their output tax liability.
• A new Rule 67B will define how suppliers’ tax liabilities can be adjusted against credit notes issued.
• Section 39(1) and Rule 61 will mandate that FORM GSTR-3B for a given tax period can only be filed after FORM GSTR-2B becomes available on the portal.

6. Flexibility For Composition Taxpayers

To support taxpayers registered under the Composition Levy Scheme, Rule 19(1) of the CGST Rules, 2017, will be amended to allow modifications to their “category of registered person” in FORM GST CMP-02 via FORM GST REG-14.

Other Measures And Recommendations

The GST Council addressed additional issues to ensure the GST framework remains relevant and responsive to the needs of taxpayers. These measures include policy updates, procedural changes, and recommendations aimed at addressing specific concerns raised by states and industry representatives.

1. Addressing IGST Settlement Issues

The Council approved recommendations from a committee of officers to resolve issues related to IGST settlement. These changes are expected to be finalised by March 2025, ensuring greater transparency and efficiency in fund allocation between the Centre and states.

2. Procedural Guidelines For GST Appellate Tribunal (GSTAT)

The Council took note of the procedural rules for the internal functioning of the GST Appellate Tribunal (GSTAT). These rules will be notified following examination by the Law Committee, facilitating the operationalisation of GSTAT.

3. Extension For Group Of Ministers On GST Compensation

The timeframe for the Group of Ministers (GoM) working on restructuring GST compensation has been extended to 30th June 2025, allowing them to address outstanding issues comprehensively.

4. Examination Of Natural Disaster Levy

At the request of the state of Andhra Pradesh, the Council recommended forming a Group of Ministers to examine the legal and structural issues surrounding the imposition of a levy during natural disasters or calamities. This group will work towards creating a uniform policy applicable across states.

5. Clarification On Charges For Floor Space Index (FSI)

The Council deliberated on whether charges collected by municipalities for granting FSI, including additional FSI, are subject to GST under the reverse charge mechanism. This matter was deferred for further examination by the Central Government, considering its implications for municipalities and local authorities.

6. Amendments To Define Local And Municipal Funds

The Council proposed amendments to Section 2(69) of the CGST Act, 2017, to:

• Include definitions of ‘Local Fund’ and ‘Municipal Fund.’
• Clarify the scope of these terms to avoid disputes and ensure uniform interpretation.

7. Streamlining The Input Service Distributor (ISD) Mechanism

To make the ISD mechanism more robust, the following amendments were proposed:

• Section 2(61) and Section 20(1) of the CGST Act, 2017, will explicitly include inter-state Reverse Charge Mechanism (RCM) transactions.
• Section 20(2) and Rule 39(1A) of the CGST Rules, 2017, will be amended accordingly.
  These changes will take effect from 1st April 2025.

Summary Of Key Updates From The 55th GST Council Meeting