55th GST Council Meeting

Summary of 55th GST Council Meeting Updates

The GST Council recommends key changes, including reduced rates on Fortified Rice Kernel, GST exemptions for gene therapy, insurance contributions, and vouchers, along with clarifications on penal charges and pre-deposit for appeals.

Changes in GST Rates for Goods

1. Fortified Rice Kernel (FRK): GST rate reduced to 5%.
2. Gene Therapy: Exempted from GST.
3. IGST Exemption for LRSAM System: Exemption extended to components related to LRSAM system (under Notification 19/2019-Customs).
4. Compensation Cess for Merchant Exporters: Reduced to 0.1% to align with GST rates on supplies.
5. IAEA Equipment Imports: IGST exemption on imports of equipment and consumable samples by IAEA Inspection Team (subject to conditions).
6. 5% GST on Food Inputs for Free Distribution: Extended 5% GST rate on food inputs under HSN 19 or 21 for government programs intended for economically weaker sections.

Changes in GST Rates for Services

1. Sponsorship Services: Brought under the Forward Charge Mechanism.
2. Motor Vehicle Accident Fund Contributions: Exempted from GST for contributions made by general insurance companies to the Motor Vehicle Accident Fund.
3. Hotel Services Rate Adjustment: GST on restaurant services in hotels linked to accommodation’s value of supply. Options for 18% with ITC or 5% without ITC from FY 2025 onwards.
4. Composition Levy Exclusion: Excludes taxpayers registered under the composition scheme from reverse charge on property rental services.

Other Changes in Goods and Services

1. Old and Used Vehicle Sales: GST raised from 12% to 18% on old and used vehicles (including EVs), based on the margin of the supplier (not the entire vehicle value).
2. Autoclaved Aerated Concrete (ACC) Blocks: Clarified that ACC blocks with >50% fly ash content are classified under HS 6815, attracting 12% GST.
3. Pepper and Raisins: Exempted from GST when supplied by an agriculturist.
4. Pre-Packaged and Labelled Goods: Definition amended to include goods intended for retail sale, under 25 kg/lit, requiring proper labeling as per Legal Metrology Act.
5. Popcorn Classification: Clarified GST on popcorn – 5% if unbranded, 12% if branded (pre-packaged); caramel popcorn (with sugar) classified as sugar confectionery, attracting 18% GST.
6. GST on Ground Clearance: Explanation for ground clearance in Notification No. 1/2017-Compensation Cess clarified to apply from July 2023.
7. Payment Aggregators: RBI-regulated payment aggregators eligible for exemption under specified notification; not applicable to payment gateways or fintech services.
8. Penal Charges by Banks/NBFCs: Clarified no GST payable on penal charges imposed by banks and NBFCs for loan defaults.

Measures for Facilitation of Trade

1. SEZ/FTWZ Warehousing: Amendments to Schedule III of CGST Act to treat supply of goods in SEZ/FTWZ as neither supply of goods nor services, aligning with customs bonded warehouse provisions.
2. Taxability of Vouchers:
   • Clarification that voucher distribution on a principal-to-principal basis is not subject to GST.
   • Commission/fee on principal-to-agent basis for voucher distribution is taxable.
   • GST applicable on additional services related to vouchers, such as marketing, customization, and customer support.
   • Unredeemed vouchers (breakage) are not considered supply, and no GST is payable.
3. Clarifications on ITC Reversal: No ITC reversal required for e-commerce operators for supplies under section 9(5) of CGST Act.
4. Ex-Works Contract ITC: Clarified that goods delivered at the supplier’s place of business in an Ex-Works contract qualify for ITC, subject to conditions.
5. Late Fee Waiver for GSTR-9C: Clarification issued regarding late fees for delayed filing of FORM GSTR-9C, with a waiver for periods 2017-18 to 2022-23 if filed by 31st March 2025.

Measures for Streamlining Compliance in GST

1. Track and Trace Mechanism: Enabling provision in CGST Act to implement a Track and Trace system for specified evasion-prone goods via unique identification markings, effective from 01.07.2017.
2. Online Services Compliance: Clarified that for online services (e.g., money gaming, OIDAR), suppliers must record the state name of unregistered recipients on invoices.

Other Law and Procedure Changes

1. Section 17(5)(d) Amendment: Amendments to allow a broader interpretation of “plant and machinery,” effective retrospectively from 01.07.2017.
2. Pre-deposit for Appeals: Reduced pre-deposit for appeals related only to penalties (from 25% to 10%) for appeals before Appellate Authorities and Tribunals.
3. Definitions of Local and Municipal Fund: Clarification added to the CGST Act regarding “Local Fund” and “Municipal Fund” terms.
4. Input Service Distributor (ISD) Amendment: Amendments made to include interstate reverse charge mechanism (RCM) transactions under ISD provisions from 01.04.2025.
5. Temporary Identification Number: Provision for granting a Temporary Identification Number by tax officers for persons not required to register under GST.

Conclusion

The 55th GST Council Meeting introduced important updates, including rate changes in sectors like defense, health, and food, along with clarifications on sponsorship and property rental services. Key procedural changes include the waiver of late fees for certain filings and new exemptions for specific goods and services.

These updates impact businesses, particularly in defense, pre-packaged goods, and hospitality, requiring adjustments to GST liabilities and compliance. The changes aim to simplify processes, reduce risks, and enhance clarity in the tax code.