The GST Council held its 55th meeting on December 21, 2024, in Jaisalmer, Rajasthan. Chaired by Union Finance Minister Smt. Nirmala Sitharaman, this meeting brought together state representatives and senior officials to deliberate on important changes. Here’s a simplified breakdown of the major decisions and what they mean for businesses and consumers.
KEY GST RATE CHANGES
GOODS
Fortified Rice Kernel (FRK): The GST rate on Fortified Rice Kernel (FRK), has been reduced from 18% to 5%, regardless of its final use to enhance support for government nutrition programs.
Gene Therapy: Gene therapy, vital for treating life-threatening diseases, has been completely exempted from GST, promoting advancements in healthcare and improving access to such treatments.
Defense Components: The IGST exemption for components used in Long Range Surface to Air Missile (LRSAM) systems has been expanded, fostering domestic defense production.
Merchant Exports: The Compensation Cess on supplies to merchant exporters has been reduced to 0.1%, aligning with the GST rate, making the process more efficient for merchant exporters.
IAEA Equipment: To exempt IGST on imports of all equipment and consumable samples by the Inspection Team of the International Atomic Energy Agency (IAEA) subject to specified conditions.
Food Inputs: A concessional 5% GST rate has been extended to food inputs used in food preparations under government programs aimed at free distribution to economically disadvantaged groups. This applies to food preparations classified under HSN 19 or 21, subject to the existing conditions.
SERVICES
Corporate Sponsorships: Corporate sponsorships will now be taxed under the Forward Charge Mechanism, shifting responsibility to the sponsor.
Motor Vehicle Accident Fund: Contributions from insurance companies to the Motor Vehicle Accident Fund are now exempt from GST. This fund compensates road accident victims and provides cashless treatment.
Hotel and Restaurant GST: Starting April 1, 2025, the GST rate on restaurant services in hotels will depend on the room’s value from the previous financial year. If the room rate exceeds ₹7,500, the GST on restaurant services will be 18% with input tax credit (ITC). Otherwise, it will be 5% without ITC.
Used Vehicle Sales: The GST rate on the sale of old and used vehicles, including electric vehicles (EVs), will increase from 12% to 18%. However, vehicles like old petrol and diesel cars with large engine capacities, and SUVs, are excluded from this change. GST will apply only to the supplier’s margin.
CLARIFICATIONS ISSUED
Autoclaved Aerated Concrete (AAC) Blocks: GST has been clarified at 12% for concrete blocks with more than 50% fly ash.
Ready-to-Eat Popcorn: GST on ready-to-eat popcorn depends on packaging and ingredients. Unpacked or unlabelled popcorn is taxed at 5%, while pre-packaged and labelled popcorn is taxed at 12%. Popcorn with sugar (e.g., caramel popcorn) is taxed at 18%.
Payment Aggregators: RBI-regulated Payment Aggregators are exempt from GST but payment gateways and non-settlement fintech services are not.
Penal Charges: No GST will be levied on penal charges imposed by banks or NBFCs on borrowers.
Pepper and Raisins: Both fresh green and dried pepper, as well as raisins, are exempt from GST when supplied by agriculturists.
TRADE FACILITATION MEASURES
Simplifying Voucher Transactions: Vouchers are not considered goods or services under GST. Only agent commissions for distributing vouchers will be taxed, and unredeemed vouchers won’t attract any tax.
SEZ Warehousing: Goods stored in Special Economic Zones (SEZ) or Free Trade Warehousing Zones (FTWZ) are exempt from GST if transferred to a person before export or movement to the Domestic Tariff Area.
Input Tax Credit (ITC): The definition of “Plant and Machinery” has been clarified for better ITC eligibility, with the change applied retrospectively from July 1, 2017. Under Ex-Works contracts, goods delivered at the supplier’s premises are now eligible for ITC.
Late Fee Waivers: Late fees for filing annual returns from 2017-18 to 2022-23 will be waived if filed by March 31, 2025.
COMPLIANCE ENHANCEMENTS
Track-and-Trace System: A new system will monitor goods prone to tax evasion, aiming to reduce fraud by up to 15%.
Online Invoicing: Businesses must include the recipient’s state details in tax invoices, especially for online services like gaming and OIDAR, which will help determine the place of supply.
Appeal Penalties: The pre-deposit for penalty appeals has been reduced from 25% to 10%, which will help over 5,000 small and medium businesses annually.
Temporary Tax IDs: Businesses that don’t require full registration can now get a Temporary Tax ID (TIN) for cross-border e-commerce, simplifying the tax payment process.
LEGAL AND PROCEDURAL UPDATES
Invoice Management System (IMS): The IMS has been enhanced to improve tax credit reconciliation, reducing processing times by 30%.
Local Fund Definitions: Clarifications to the CGST Act will resolve over 200 pending disputes, offering better guidance for tax applications.
ISD Mechanism Expansion: The Inter-State Reverse Charge Mechanism (RCM) has been included under the IGST Act.
OTHER HIGHLIGHTS
Disaster Levy Policy: The GST Council will form a Group of Ministers to examine the legal and structural issues surrounding tax imposition during natural disasters, following a request from Andhra Pradesh.
Municipal Charges: Discussions on additional FSI-related charges for urban development projects have been postponed, affecting over 1,000 projects.
GST Compensation: The deadline for a Group of Ministers to discuss GST Compensation restructuring has been extended until June 30, 2025.
CONCLUSION
The 55th GST Council meeting highlights a targeted effort to simplify tax laws and enhance compliance. These updates are designed to clarify ambiguities, support trade, and promote fairness, making GST a more effective system for all involved. With these changes, more than 2 lakh taxpayers stand to benefit from reduced compliance burdens and clearer guidelines.
