Key Takeaways from the 55th GST Council Meeting: What You Need to Know

The 55th GST Council meeting, chaired by Union Minister for Finance & Corporate Affairs Smt. Nirmala Sitharaman, took place in Jaisalmer, Rajasthan, on December 21, 2024. The GST meeting today saw participation from various state finance ministers and senior officers. The GST Council press release highlighted several significant recommendations aimed at reducing GST rates, providing relief to individuals, facilitating trade, and streamlining GST compliance. Notably, the Council discussed the GST rate on used cars, among other key topics.

Changes in GST Rates for Goods and Services

Goods:

1. Fortified Rice Kernel (FRK): The GST rate on FRK has been reduced to 5%.
2. Gene Therapy: GST on gene therapy has been fully exempted.
3. LRSAM System: IGST exemption extended to systems, sub-systems, equipment, parts, sub-parts, tools, and test equipment for the assembly/manufacture of LRSAM system.
4. Merchant Exporters: Compensation Cess on supplies to merchant exporters reduced to 0.1%.
5. IAEA Inspection Team: IGST exemption on imports of equipment and consumables for the IAEA inspection team.
6. Food Preparations: Concessional 5% GST rate extended on food inputs for free distribution to economically weaker sections.

Services:

1. Sponsorship Services: Brought under Forward Charge Mechanism.
2. Motor Vehicle Accident Fund: GST exemption on contributions from third-party motor vehicle premiums.
3. Hotel Accommodation: Adjustments in GST rates based on the value of supply of units of accommodation.
4. Commercial Property Renting: Exclusion of composition levy scheme taxpayers from reverse charge mechanism for renting commercial property.

Other Notable Changes

1. Old and Used Vehicles: GST rate increased from 12% to 18% on the sale of old and used vehicles, including EVs, with specific conditions.
2. Autoclaved Aerated Concrete (ACC) Blocks: Clarified to attract 12% GST if containing more than 50% fly ash.
3. Agricultural Products: Clarified that fresh green or dried pepper and raisins supplied by an agriculturist are not liable to GST.
4. Pre-packaged and Labelled Commodities: Definition amended to cover all commodities intended for retail sale.
5. Popcorn Classification: Clarified GST rates based on the type of popcorn (salted/spiced vs. caramel).

Measures for Trade Facilitation

1. Schedule III Amendment: Supply of goods warehoused in SEZ/FTWZ treated neither as supply of goods nor services.
2. Vouchers: Clarified that transactions in vouchers are neither supply of goods nor services, with specific conditions for principal-to-agent distribution.
3. Circulars for Clarity: Issuance of circulars to remove ambiguities in various GST-related issues.

Streamlining GST Compliance

1. Track and Trace Mechanism: Introduction of a unique identification marking system for specified commodities.
2. Online Services: Mandate for suppliers to record the state of unregistered recipients for online services.
3. Invoice Management System (IMS): Legal framework for generating FORM GSTR-2B based on taxpayer actions on IMS.

Legal and Procedural Amendments

1. Section 17(5)(d) Amendment: Retrospective amendment to align the definition of “plant and machinery.”
2. Pre-deposit for Appeals: Reduced pre-deposit requirement for filing appeals involving only penalty amounts.
3. Local and Municipal Funds: Definitions inserted for ‘Local Fund’ and ‘Municipal Fund.’
4. Temporary Identification Number: Provision for generating temporary identification numbers for non-registered persons required to make payments.

Additional Measures

1. IGST Settlement: The Council approved measures for IGST settlement issues, with changes to be concluded by March 2025.
2. GSTAT Operationalization: Procedural rules for the internal functioning of the GSTAT to be notified after examination by the Law Committee.
3. GST Compensation Restructuring: Extension of the time frame for the Group of Ministers on GST Compensation restructuring till June 30, 2025.
4. Natural Disaster Levy: Formation of a Group of Ministers to examine and recommend a uniform policy on levy imposition in case of natural disasters.

Conclusion

The 55th GST Council meeting brought forth several crucial changes aimed at simplifying GST compliance, reducing tax burdens, and providing clarity on various issues. These recommendations, once implemented through relevant circulars and notifications, will have a significant impact on businesses and individuals alike, fostering a more streamlined and efficient GST regime.

Impact of GST Rate on Old and used Vehicles

The increase in GST rate from 12% to 18% on the sale of old and used vehicles, including electric vehicles (EVs), is likely to have several implications for both buyers and sellers in the market. For sellers, particularly those dealing in high-volume transactions, this hike could mean a higher tax burden, which might be passed on to consumers in the form of increased prices. This could potentially slow down the sales of used vehicles as buyers might find the higher costs less attractive. Additionally, the specific conditions under which this new rate applies, such as the type and size of the vehicle, add a layer of complexity to the transaction process, requiring sellers to be more diligent in their tax calculations and compliance.

For consumers, the increased GST rate could lead to higher overall costs when purchasing a used vehicle. This might discourage some buyers, particularly those looking for budget-friendly options, from entering the market. However, the impact might be mitigated for certain segments, such as those purchasing smaller or less expensive vehicles, which may not be as heavily affected by the rate change. On the other hand, the clarification that GST is only applicable on the margin of the supplier (the difference between the purchase price and selling price) rather than the full value of the vehicle, provides some relief. This ensures that the tax burden is somewhat balanced and does not disproportionately affect the affordability of used vehicles.

FAQ: Implications of the 55th GST Council Meeting Recommendations

1. What are the key changes recommended by the 55th GST Council meeting?

The key changes include:

• Reduction in GST rate on Fortified Rice Kernel (FRK) to 5%.
• Full exemption of GST on gene therapy.
• Exemption of GST on contributions from third-party motor vehicle premiums to the Motor Vehicle Accident Fund.
• Clarification that no GST is payable on penal charges levied by banks and NBFCs.
• Reduction in pre-deposit payment for filing appeals involving only penalty amounts.

2. How will these changes affect small businesses?

Impact on Small Businesses:

• Reduced Compliance Burden: The clarification on vouchers and penal charges simplifies compliance, reducing the administrative burden on small businesses.
• Lower Costs: The reduction in GST rates on certain goods and services can lower costs for small businesses, particularly those dealing in Fortified Rice Kernel and food preparations for free distribution.
• Appeal Process: The reduction in pre-deposit payments for filing appeals involving only penalties makes it easier for small businesses to contest penalties without significant financial strain.

3. How will these changes affect consumers directly?

Impact on Consumers:

• Lower Prices: The reduction in GST rates on goods like Fortified Rice Kernel and certain food preparations can lead to lower prices for consumers.
• Healthcare Benefits: The exemption of GST on gene therapy can make advanced medical treatments more affordable for consumers.
• Insurance Costs: The exemption on contributions to the Motor Vehicle Accident Fund can potentially lower third-party motor vehicle insurance premiums, benefiting consumers.

4. What are the implications of the changes in GST rates for goods and services?

Goods:

• Fortified Rice Kernel: Lower GST rate can make fortified rice more affordable, promoting better nutrition.
• Gene Therapy: Full exemption can reduce the cost of advanced medical treatments.
• Merchant Exporters: Reduced Compensation Cess can boost exports by lowering costs.
• Food Preparations: Concessional rates for food inputs can support government programs aimed at aiding economically weaker sections.

Services:

• Sponsorship Services: Bringing these under Forward Charge Mechanism simplifies tax collection.
• Motor Vehicle Accident Fund: Exemption supports the fund’s objective of providing compensation and cashless treatment to road accident victims.
• Hotel Accommodation: Adjustments in GST rates based on the value of supply can lead to more transparent pricing for consumers.

5. What measures have been introduced to facilitate trade?

• Schedule III Amendment: Treating supply of goods warehoused in SEZ/FTWZ as neither supply of goods nor services simplifies trade operations.
• Vouchers: Clarifications on the taxability of vouchers reduce ambiguities and potential disputes.
• Circulars for Clarity: Issuance of circulars to remove ambiguities in GST-related issues ensures smoother compliance and reduces legal disputes.

6. How will the new Track and Trace Mechanism affect businesses?

The introduction of a unique identification marking system for specified commodities aims to prevent tax evasion and ensure traceability throughout the supply chain. This can enhance transparency and accountability in business operations.

7. What are the legal and procedural amendments introduced?

• Section 17(5)(d) Amendment: Aligns the definition of “plant and machinery” retrospectively, providing clarity.
• Pre-deposit for Appeals: Reduced pre-deposit requirement for filing appeals involving only penalties eases the financial burden on businesses.
• Local and Municipal Funds: Definitions for ‘Local Fund’ and ‘Municipal Fund’ provide clarity in tax administration.
• Temporary Identification Number: Provision for generating temporary identification numbers for non-registered persons required to make payments simplifies compliance.

8. What additional measures were discussed in the meeting?

• IGST Settlement: Measures for IGST settlement issues to be concluded by March 2025.
• GSTAT Operationalization: Procedural rules for the internal functioning of the GSTAT to be notified.
• GST Compensation Restructuring: Extension of the time frame for the Group of Ministers on GST Compensation restructuring till June 30, 2025.
• Natural Disaster Levy: Formation of a Group of Ministers to recommend a uniform policy on levy imposition in case of natural disasters.

Here are some internal links from GST India News that might be relevant to you:

1. EPFO’s Last Call for Employers to Settle Pending Pension Applications – This article discusses the final opportunity for employers to address pending pension applications, which could be useful for understanding compliance deadlines and responsibilities.
2. ASMT 10 & 11 In GST: How to reply scrutiny notice with Format? – This guide provides detailed steps on how to reply to GST scrutiny notices, which can help businesses ensure they are compliant with GST regulations.
3. Explore gst.gov.in: The Official GST Portal for Indian Taxpayers – This article offers insights into the official GST portal, which is essential for taxpayers to manage their GST-related activities effectively.