Highlights of the 55th GST Council Meeting: Outcomes and Updates

The Union Finance and Corporate Affairs Minister chaired the 55th GST Council meeting on December 21, 2024, in the picturesque city of Jaisalmer, Rajasthan. This meeting marked a significant milestone in the ongoing evolution of India’s Goods and Services Tax (GST) framework. A distinguished group of policymakers, including the Union Minister of State for Finance, Shri Pankaj Chaudhary, attended the meeting.

Additionally, the Chief Ministers of Haryana, Jammu and Kashmir, Meghalaya, and Odisha participated, along with the Deputy Chief Ministers of states such as Arunachal Pradesh, Bihar, Madhya Pradesh, and Telangana. The meeting also saw the participation of Finance Ministers from various States and Union Territories, accompanied by senior officials from both the Ministry of Finance and state/UT governments.

This meeting addressed a wide array of pressing issues, ranging from rate rationalization and tax exemptions to compliance reforms, with a focus on simplifying processes and easing the tax burden on certain sectors.

Key Highlights from the 55th GST Council Meeting

1. Extension for Group of Ministers (GoM)

The Group of Ministers (GoM) formed to deliberate on the compensation cess, rate rationalization, and health insurance policies received an extension to submit its final report. This gives the GoM additional time to fine-tune its recommendations.

2. Key Exemptions and Clarifications on GST

The authorities announced several significant clarifications and exemptions, aiming to simplify the GST framework and make it more business friendly:

a. Payment Aggregators Exemption

The Council exempted payment aggregators from GST on transactions amounting to less than ₹2,000. However, this exemption applies only to payment aggregators and does not cover payment gateways or fintech services, which handle transactions without involving fund settlements.

b. Penalty Charges by Banks and NBFCs

The government exempted GST on penal charges that banks and non-banking financial companies (NBFCs) collect for non-compliance with loan terms. This decision aims to relieve financial institutions and borrowers from additional tax burdens.

c. Agricultural Products GST Exemption

Agriculturists removed the GST on supplies of dried black pepper and raisins, making these essential food items tax-free when supplied directly by farmers.

d. Caramelized Popcorn

The Council clarified that it categorizes caramelized popcorn similarly to other products with added sugar, so it will attract a higher GST rate. In contrast, it classifies salted popcorn as namkeen, subjecting it to a lower 5% GST rate.

e.  GST on the Sale of Used/Old Cars

The GST on old car sales in India applies only to transactions by registered dealers, not individuals.
Rates are 12% for small cars (engine <1500cc), 18% for larger cars/SUVs (engine >1500cc), and 5% for electric vehicles. One calculates GST on the margin (sale price minus purchase price). Transactions between individuals or from an individual to a dealer are GST-exempt.
Input Tax Credit (ITC) is allowed only for business-use vehicles. Proper documentation, like invoices and registration details, is mandatory. Consult a tax expert for updates or specific cases.

Here’s a brief example of GST on old cars:
A dealer buys a used car for ₹4,00,000 and sells it for ₹5,00,000. GST is charged on the margin of ₹1,00,000.
For small cars (engine <1500cc), GST is 12%: ₹1,00,000 × 12% = ₹12,000.
For large cars (engine >1500cc), GST is 18%: ₹1,00,000 × 18% = ₹18,000.
GST is calculated only on the profit margin, not the full value.

Changes in Tax Rates: What Became Cheaper and Costlier?

The government introduced several significant changes in GST rates to make certain products more affordable and address disparities in the existing tax structure:

Significant Clarifications and Compliance Reforms?

In a bid to streamline compliance and make the process more transparent and efficient, the GST Council recommended various reforms:

1. Invoice Management System (IMS) Reforms

The government proposed amendments to the CGST Act, 2017, and CGST Rules, 2017 to enhance the functioning of the Invoice Management System (IMS). These include the generation of Form GSTR-2B, facilitating smoother input tax credit (ITC) tracking based on actions taken by taxpayers.

2. Reversal of Input Tax Credit

The government proposed amending Section 34(2) of the CGST Act to require recipients to reverse ITC attributable to a credit note issued by suppliers, ensuring a corresponding reduction in the supplier’s output tax liability.

3. Late Fee Waiver for GSTR-9C Filings

The GST Council proposed the waiver of late fees for delayed filing of Form GSTR-9C (reconciliation statement) for the financial years 2017-18 to 2022-23. This waiver is applicable only if the form is filed by March 31, 2025.

4. Pre-deposit for Appeals Reduced

The GST Council recommended reducing the pre-deposit requirement for filing an appeal before the Appellate Authority. Taxpayers will now only need to pay 10% of the penalty amount when appealing in cases that involve penalty claims without tax demands.

Expectations and Future Discussions

The 55th GST Council meeting concluded with several landmark decisions, shifting attention to the next steps, where authorities may revisit various pending issues.

1. Insurance Industry Reforms

Expectations include further reforms to GST rates on health and life insurance policies, with proposals to exempt GST on term life insurance premiums and premiums for senior citizens. Additionally, there are discussions on reducing GST rates on health insurance premiums for non-senior citizens.

2. Inverted Duty Structure Reforms

A major focus will be on addressing the inverted duty structure, where the GST rate on raw materials exceeds that on finished products, causing unused input tax credits (ITC) to accumulate. The Council is expected to rationalize GST rates to resolve businesses’ liquidity issues.

3. Tobacco and Luxury Goods GST Rates

The Group of Ministers may recommend a special 35% tax rate (including cess) on certain luxury goods, such as tobacco, aerated beverages, and other high-consumption goods. These changes are expected to impact both the economy and society.

4. Potential Inclusion of Petroleum Products Under GST

Authorities are likely to discuss including aviation turbine fuel (ATF) and other petroleum products under the GST framework to allow input tax credit on fuel, benefiting industries such as aviation and transportation.

Conclusion

The 55th GST Council Meeting took a crucial step towards refining the GST framework to make it more business-friendly. The meeting introduced changes in rates, exemptions for essential goods, and comprehensive compliance reforms. These outcomes are expected to reduce tax burdens for many sectors, especially agriculture, health insurance, and financial institutions. Looking ahead, further deliberations will continue to shape the future landscape of GST in India.