Recently, The 54th Goods and Service Tax Council met under the Chairpersonship of Union Minister for Finance & Corporate Affairs Smt. Nirmala Sitharaman in New Delhi on September 9, 2024.
The council has proposed series of recommendations relating to changes in GST tax rates, provide relief to individuals, measures for facilitation of trade and measures for streamlining compliances in GST.
The council has clarified that Preferential Location Charges (PLC) paid in addition to the cost of construction services for residential, commercial, or industrial complexes before the issuance of a completion certificate, are part of a composite supply. In this case, the primary service is the construction, and PLC is considered naturally bundled with it. Therefore, the PLC is subject to the same tax treatment as the construction services.”The GST Council in the last meeting has addressed many industry pain points and initiated long-term policy corrections through constitution of a Group of Ministers. Key clarifications, such as treating Preferential Location Charges (PLC) as part of composite supply with construction services and taxability of services imported by foreign airline establishments from related persons without consideration, including retrospective regularisation, clarifying the place of supply for advertising and data-hosting services provided to foreign entities as the recipient’s location and treating them as exports, will resolve ongoing litigation and bring relief to the concerned industries,” said SR Patnaik, Partner (Head – Taxation), Cyril Amarchand Mangaldas.
The council has recommended exempting the import of services by a foreign airline’s establishment from a related entity or any of its other establishments outside India, provided the services are imported without consideration. Additionally, it proposed regularizing any past instances of such imports on an ‘as is where is’ basis which will help in resolving ongoing litigation.
The council has introduced Reverse Charge Mechanism (RCM) on supply of metal scrap by unregistered person to registered person and commercial property rentals. “The extension of the Reverse Charge Mechanism (RCM) to commercial property rentals and supply of metal scrap by unregistered persons aims to provide level playing field,” said SR Patnaik
The introduction of RCM on supply of metal scrap by unregistered person to registered person will prevent revenue leakage.
The Council’s recommendation for B2C e-Invoicing pilot and GST return enhancements, including RCM and Input Tax Credit Reclaim ledgers, reflects its commitment to improving tax processes. Discussions on reducing GST rates for health and life insurance premiums and exempting R&D services by government entities also indicate a focus on targeted relief.SR Patnaik, Partner (Head – Taxation), Cyril Amarchand Mangaldas
The GST Council has recommended launching a pilot project for B2C e-invoicing, building on the successful introduction of e-invoicing in the B2B sector. The Council highlighted potential advantages for the retail industry, including enhanced business efficiency, environmental benefits, and cost savings. Additionally, the initiative will allow retail customers to verify whether their invoices have been reported in GST returns. The pilot will be implemented on a voluntary basis, targeting specific sectors and states. “Introducing a pilot for B2C e-Invoicing is a proactive measure to enhance transparency and accountability in retail transactions. If successful, this initiative could lead to greater efficiency and environmental benefits by reducing paper usage and simplifying record-keeping. In addition, the government should consider extending e-invoicing procedures to the export of goods and services, further streamlining the process and boosting compliance,” said Amit Bansal, Partner, Singhania & Co.The GST Council has recommended forming a Group of Ministers (GoM) to comprehensively examine issues related to GST on life and health insurance. “By involving multiple states in these reviews, the government aims to ensure comprehensive and balanced solutions that address the diverse needs of stakeholders,” said Amit Bansal.
The group is expected to submit its report by the end of October 2024.
The GST Council has proposed a reduction in the GST rate on certain cancer drugs, including Trastuzumab Deruxtecan, Osimertinib, and Durvalumab, from 12% to 5%. This move is aimed at making these life-saving cancer treatments more affordable for patients.”This measure aligns with the broader objective of reducing healthcare costs and improving access to life-saving therapies,” said Amit Bansal.
The GST Council has recommended an exemption for the supply of research and development services provided by a Government entity or a research association, university, college, or other institutions, which are notified under clauses (ii) or (iii) of sub-section (1) of section 35 of the Income Tax Act, 1961. This exemption applies when these services are funded through government or private grants. “Exempting R&D services provided by government entities or recognized institutions from GST aligns with the goal of promoting innovation and reducing the financial burden on entities engaged in crucial research work. This exemption supports the development of new technologies and solutions, fostering a more competitive and innovative economy,” said Amit Bansal.
The GST Council has also recommended adding Rule 164 to the CGST Rules, 2017, alongside certain forms. This rule specifies the procedures and conditions under which taxpayers can avail of waivers for interest, penalties, or both, concerning tax demands raised under section 73 of the CGST Act. These waivers apply to tax periods for the fiscal years 2017-18, 2018-19, and 2019-20, as outlined under section 128A of the CGST Act. “Recommendations, such as waiving penalties or interest for certain tax demands and implementing new procedures for GST refunds and input tax credit adjustments, are designed to simplify compliance, reduce litigation, and provide relief to taxpayers,” said Amit Bansal.
He adds, “Finally, issuing clarifications for specific sectors, such as transport (including passenger transport by helicopters and renting of commercial properties), education (affiliation services), and services related to electricity supply, demonstrates a targeted approach to addressing the unique needs and challenges faced by different industries. These clarifications contribute to a more predictable and fair tax environment, which supports economic growth and reduces compliance costs for businesses.”
Overall, these measures represent a comprehensive effort to enhance the efficiency, transparency, and fairness of the GST system, ultimately benefiting the economy and stakeholders across various sectors.Amit Bansal, Partner, Singhania & Co.
GST Council recommends Group of Ministers (GoM) on life and health insurance related GST with existing GoM on Rate Rationalisation; to submit report by end of October 2024. “The industry has long argued that the existing 18% GST rate on insurance premiums creates a significant burden, hindering the affordability of these essential services. A reduction or exemption would not only alleviate this financial strain but also promote wider insurance coverage across India, a pressing issue given the country’s low insurance penetration in comparison to global standards,” said Aashwyn Singh, Associate, SKV Law Offices.
The Council is working toward simplifying the multi-tier GST rate system, potentially shifting to a three-tier structure to make compliance easier for businesses and streamline tax collection. This rationalization effort is with the intention to increase ease of business and avoid tax notices and delays in tax collection by simplification of classification disputes for goods and services.Aashwyn Singh, Associate, SKV Law Offices.
He added, “These reforms reflect the Council’s commitment to making the tax regime more equitable and accessible, with targeted relief measures aimed at boosting key sectors like healthcare and insurance.”
Devansh Jain, Principal Associate, PSL Advocates & Solicitors notes that “the industry had high expectations regarding several pending issues, it appears that the Council only addressed a portion of these concerns. The remaining agenda items are expected to be deliberated in the next meeting, which is scheduled for November 2024.”
Despite this, several significant clarifications and amendments were proposed during this session. Key highlights include the implementation of a GST amnesty scheme, exemptions on the import of services by branches of foreign airlines, IGST refunds for exporters, and clarity on the place of supply for advertising services.Devansh Jain, Principal Associate, PSL Advocates & Solicitors
The council has issued clarification regarding availability of Input Tax Credit on demo vehicles by the dealers of the vehicle manufacturers. “The input tax credit (ITC) for demonstration vehicles and other important matters were also discussed, providing much-needed clarity for businesses and stakeholders alike,” said Devansh Jain.
The council has also clarified that affiliation services provided by educational boards like CBSE are taxable. However, to exempt affiliation services provided by State or Central educational boards, educational councils and other similarly placed bodies to Government Schools prospectively and also, clarified that the affiliation services provided by universities to their constituent colleges are not covered within the ambit of exemptions provided to educational institutions and GST at the rate of 18% is applicable on the affiliation services provided by the universities. “Affiliation services provided by State/Central educational boards to government schools will now be exempt prospectively, while services provided by universities to their constituent colleges will be taxed at 18%,” said Devansh Jain.
The council also clarified that the approved flying training courses conducted by DGCA approved Flying Training Organizations (FTOs) are exempt from the levy of GST. “Exemptions were granted for flying training courses by DGCA-approved organizations, and the import of services by foreign airlines from related establishments outside India will also be exempt when made without consideration,” said Devansh Jain.
The council recommends Group of Ministers (GoM) on life and health insurance related GST with existing GoM on Rate Rationalisation and also recommending reduction in GST rates on cancer drugs – Trastuzumab Deruxtecan, Osimertinib and Durvalumab from 12% to 5%. GST Council recommends roll out of a pilot for B2C e-Invoicing. Thus, “Such measures, particularly in the health sector, if implemented are likely to bring about a positive change which may also lead to growth and development in the promising medical tourism sphere in India,” said Aditya Chopra, Managing Partner, The Victoriam Legalis.
Further, granting an exemption from GST in relation to supply of research and development services by a Government Entity; or a research association, university, college or other institution, notified as per law, could be an encouragement for innovation and growth that may be potentially brought about through a more cost-effective supply of research and development services.Aditya Chopra, Managing Partner, The Victoriam Legalis.
Alay Razvi, Partner, Accord Juris said, “Basically, a well balanced decision parallely boost the economy yet affordable. Much needed decision on waiver of interest and penalty in respect of GST tax demands for the financial years 2017-18 to 2019-20.”
He adds, “The initial year was the learning phase with mistakes under gst mechanism. At least the mistakes will not cost and tax demand under section can be paid on or before 31-Mar-2025.”
The GST council is gradually raising its bar and achieving success in implementing various rules, as in, implementation of invoicing is successful and was limited to B2B transactions only. The GSTC recommended to implement the e-invoicing of B2C transactions too.Alay Razvi, Partner, Accord Juris
Sandeep Bajaj, Advocate, Supreme Court of India said that the GST recommendations is “a significant move to streamline the Goods and Services Tax (GST) regime resulted in several significant recommendations aimed at streamlining tax rates and improving trade facilitation.”
The recommendations from the 54th GST Council meeting are poised to have a broad impact on various sectors including but not limited to healthcare and food industry.Sandeep Bajaj, Advocate, Supreme Court of India
He adds, “Overall, the outcomes of the 54th GST Council meeting reflect a balanced approach to tax rationalization, aiming to support economic growth while ensuring fair tax practices across sectors.”
Tushar Kumar, Advocate, Supreme Court of India terms the GST Council “a paradigmatic shift in India’s tax landscape, introducing reforms that recalibrate the balance between fiscal imperatives and social welfare.”
He adds, “The reduction of GST on life-saving cancer drugs from 12% to 5% exemplifies a commitment to healthcare accessibility, consonant with constitutional guarantees of the right to life. The exemption of research and development services from GST liability fosters an ecosystem conducive to innovation, aligning India with global best practices in intellectual property development. The introduction of B2C e-invoicing represents a bold foray into digital governance, aimed at enhancing transparency, accountability, and tax compliance.”
On the GST Council recommending Group of Ministers (GoM) on life and health insurance related GST with existing GoM on Rate Rationalisation, He adds, “This measure has the potential to revolutionize retail transactions, mitigating tax evasion and augmenting business efficiency. The constitution of a Group of Ministers to examine GST on life and health insurance signals a nuanced approach to taxation, acknowledging the intricate relationship between revenue generation and social welfare.”
The regularisation of GST liabilities has been recommended to be on an “as is where is” basis. This “mitigates potential legal disputes, providing businesses with clarity and certainty,” said
These reforms collectively signify a forward-thinking approach to tax governance, harmonizing fiscal imperatives with equitable policies and streamlined compliance procedures. If executed with precision, these measures can catalyze a paradigm shift in India’s GST regime, driving innovation, efficiency, and fairness across industries.Tushar Kumar, Advocate, Supreme Court of India
Ankit Jain, Partner, Ved Jain & Associates terms the discussions around the administration of GST reflect progress considering the process of streamlining the regime.
While earlier meetings focused on implementing new measures for tax collection efficiency, the current meeting shifted focus towards addressing taxpayer concerns. The Council introduced several measures aimed at easing compliance and rationalizing rates.Ankit Jain, Partner, Ved Jain & Associates
However, he also highlights that “several anticipated topics were either deferred or not discussed during the 54th GST Council meeting like inclusion of petroleum products, reduction of GST on health insurance premiums, rate rationalization, compensation cess and taxability of services from foreign branch offices.”
GST Council has recommended the formation of a GoM to study the future of compensation cess which will be awaited.