55th GST Council Meeting: Key Expectations

The 55th GST Council meeting, chaired by Union Finance Minister Nirmala Sitharaman in Jaisalmer, Rajasthan, introduced significant updates to India’s GST framework. Key discussions revolved around rationalizing tax rates across sectors, deferring critical decisions, and simplifying compliance for taxpayers.

Major GST Rate Revisions

Amendment in CGST Act, 2017 and CGST Rules, 2017 in respect of functionality of Invoice Management System (IMS)
The GST Council recommended inter-alia

To amend section 38 of CGST Act, 2017 and rule 60 of CGST Rules, 2017 to provide a legal framework in respect of generation of FORM GSTR-2B based on the action taken by the taxpayers on the Invoice Management System (IMS).
To amend section 34(2) of CGST Act, 2017, to specifically provide for requirement of reversal of input tax credit as is attributable to a credit note, by the recipient, to enable the reduction of output tax liability of the supplier.
To insert a new rule 67B in CGST Rules, 2017, to prescribe the manner in which the output tax liability of the supplier shall be adjusted against the credit note issued by him.

Amendment in section 17(5)(d) of CGST Act, 2017

To align the provisions of section 17(5)(d) of CGST Act, 2017 with the intent of the said section, the Council has recommended amending section 17(5)(d) of CGST Act, 2017, to replace the phrase “plant or machinery” with “plant and machinery”, retrospectively, with effect from 01.07.2017, so that the said phrase may be interpreted as per the Explanation at the end of section 17 of CGST Act, 2017.

Amendment in section 107 and section 112 of CGST Act, 2017 to provide for payment of pre-deposit for filing an appeal in respect of an order passed which involves only penalty amount.
To amend the proviso to section 107(6) of CGST Act, 2017 providing for payment of pre deposit at 10% instead of 25 %for filing appeals before Appellate Authority in cases involving only demand of penalty without involving the demand of tax.
Clarification regarding applicability of late fee for delay in furnishing of FORM GSTR 9C and providing waiver of late fee on delayed furnishing of FORM GSTR-9C for the period from 2017-18 to 2022-23:
a. The GST Council recommended to clarify through a circular that the late fee under Section 47(2) of the CGST Act, 2017 is leviable for the delay in filing the complete annual return under Section 44 of the CGST Act, 2017, which includes both FORM GSTR-9 (Annual Return) and FORM GSTR-9C (Reconciliation Statement), where applicable.
b. For the annual returns pertaining to the period 2017-18 to 2022-23, the GST Council also recommended to issue notification under section 128 of CGST Act, 2017 for waiver of the amount of late fee for delayed filing of FORM GSTR-9C, which is in excess of the amount of late fee payable till the date of filing of FORM GSTR-9 for the said financial years, provided the said FORM GSTR-9C is filed on or before 31 March 2025.

The Council announced the following changes to GST rates:

Popcorn Varieties
a. Plain salted and spiced unpackaged popcorn: 5% GST.
b. Pre-packaged popcorn: 12% GST.
c. Caramel-coated popcorn: 18% GST.
Fortified Rice Kernels (FRK)
a. GST rate reduced from 18% to 5%, irrespective of its purpose.
Autoclaved Aerated Concrete (AAC) Blocks
a. GST reduced from 18% to 12% for blocks containing over 50% fly ash.
Pre-Owned Cars and Electric Vehicles (EVs)
a. GST rate on old and used cars, including small petrol, diesel, and electric vehicles, increased from 12% to 18%.

EV-Specific Updates

New Electric Vehicles (EVs): Taxable at 5% GST.
Second-Hand EVs: Margin on sale to be taxed at 18% GST.
Used EVs between Individuals: Remain exempt from GST.

Compliance and Training Updates

Skill Training Partners: Exempt from GST to encourage skill development.

Decisions Deferred

Insurance Products: Deliberations on restructuring GST for life and health insurance premiums were deferred. A Group of Ministers (GoM), led by Bihar Deputy Chief Minister Samrat Chaudhary, will further evaluate the proposals, with findings expected at the next meeting in January 2025.
Realty Sector (FSI GST): The decision on Forward Charge Mechanism (FCM)/Reverse Charge Mechanism (RCM) applicability was postponed.

Additional Highlights

Media Advisory: Finance Minister Nirmala Sitharaman advised media outlets to refrain from speculative reports on GST rate changes, emphasizing the need for accurate communication.
Key Attendees: Union Minister of State for Finance Pankaj Chaudhary, state finance ministers, and senior CBIC officials actively participated in discussions aimed at balancing revenue optimization with tax rationalization.

Implications for Stakeholders

The GST rate changes aim to bring clarity and align taxation with industry demands. While sectors like FRK and AAC blocks gain relief, consumers of caramel-coated popcorn and buyers in the second-hand vehicle market face higher costs.

Taxpayers, particularly in the insurance and real estate sectors, should stay informed about deferred decisions as these could have significant implications on business operations and household budgets.

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The 55rd GST Council Meeting: Expectations

The 55th GST council meeting is set to take place on December 21st, 2024, in Jaisalmer, Rajasthan. This much-anticipated meeting is expected to address several key issues that have been impacting businesses and the overall economy. Let’s delve into the agenda and potential outcomes of this crucial meeting.

Focus on GST Rate Rationalization and Reforms

A central theme of the 55th GST Council Meeting is likely to be GST rate rationalization and reforms. The council is expected to discuss changes to the GST structure, particularly with regards to the inverted duty structure. This structure occurs when the tax rate on inputs is higher than the tax rate on outputs, leading to a blockage of working capital for businesses due to accumulated Input Tax Credit (ITC).

Potential Changes to GST Rates

Several proposals regarding GST rate modifications are on the table. These include:

The GST Council is anticipated to explore the possibility of reorganizing the current four-tier tax framework (5%, 12%, 18%, and 28%) to simplify the system and minimize disputes. The restructuring aims to maintain affordability for essential goods through lower tax rates while potentially increasing taxes on luxury and non-essential items to sustain revenue balance.
Reduction in GST rates on health and life insurance premiums to make insurance more affordable.
Rate rationalization on essential items such as packaged drinking water, bicycles, and exercise notebooks.
Potential inclusion of petrol and diesel under GST. This is a significant proposal that could have a major impact on the economy.
Changes to GST rates on tobacco products to curb consumption.

Product Category	Current GST Rate	Proposed GST Rate
Health insurance premiums	Exempt (up to ₹5 lakh coverage)	18% (above ₹5 lakh coverage)
Packaged drinking water (20 liters and more)	18%	5%
Bicycles (costing less than ₹10,000)	12%	5%
Exercise notebooks	12%	5%
Shoes priced above ₹15,000 per pair	18%	28%
Wristwatches costing above ₹25,000	18%	28%

Addressing the Inverted Duty Structure

One of the focal points of the 55th GST Council Meeting is the much-anticipated reform in the inverted duty structure. This anomaly, where input goods attract higher GST rates than the final products, has long been a concern for businesses, leading to blocked input tax credits and cash flow challenges. By addressing this issue, the council aims to streamline tax rates across sectors, enhancing ease of doing business and reducing compliance burdens.

Insurance Levy and New Tax Proposals

Among the key topics to be deliberated on is the introduction of GST on insurance premiums. While some stakeholders argue this could increase policy costs, others see it as a step towards aligning taxation practices with global standards. Additionally, the council may explore introducing new levies or expanding the tax net to include emerging sectors, ensuring the GST system keeps pace with India’s evolving economy.

Evolving GST Technology and Compliance

Another significant highlight of the 55th GST Council Meeting is expected to be advancements in GST technology and compliance mechanisms. The council may review the performance of recent initiatives, such as the Invoice Management System (IMS), and propose measures to further streamline compliance processes for businesses. Enhanced digitization efforts aim to minimize errors, improve data accuracy, and ensure seamless integration between taxpayers and the GSTN portal. State Compensation and Revenue Growth

As the five-year GST compensation period has ended, states continue to push for measures to address revenue shortfalls. The 55th GST Council Meeting will likely revisit discussions on extending financial support to states or identifying alternative revenue augmentation strategies. This dialogue is crucial for fostering cooperative federalism and ensuring the financial stability of state governments.

Implications of the 55th GST Council Meeting

The outcomes of the 55th GST Council Meeting are poised to impact various stakeholders, from businesses and consumers to state governments. Simplifying tax structures and enhancing transparency could foster economic growth and reduce compliance complexities. Meanwhile, industries awaiting relief from the inverted duty structure and rate rationalizations are closely watching the council’s decisions.

In conclusion, the 55th GST Council Meeting promises to be a landmark event, addressing key challenges in India’s GST ecosystem. Stakeholders are optimistic that this meeting will pave the way for a more efficient, inclusive, and forward-looking tax regime. As the council gathers on 21st December, all eyes will be on the outcomes that could shape the trajectory of India’s indirect taxation landscape in the coming years.

To read our coverage on the previous Council Meet decisions, you may refer here:

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