New Delhi, 22 December 2024: The 55th Goods and Services Tax (GST) Council meeting, chaired by Union Finance Minister Nirmala Sitharaman on Saturday, witnessed the announcement of several significant changes aimed at streamlining the taxation process and offering relief to individuals and businesses across the country.
The Council has introduced various measures designed to reduce costs for consumers and encourage a more efficient tax structure, while also addressing areas where tax burdens are being increased or adjusted.
What’s Getting Cheaper?
Fortified Rice Kernels (FRK): One of the standout announcements was the reduction of the GST rate on Fortified Rice Kernels (FRK) to 5 percent when they are supplied through the Public Distribution System (PDS). This move is designed to benefit economically weaker sections of society by making essential fortified rice more affordable for those who rely on government welfare programs.
Gene Therapy: In a groundbreaking move for healthcare, the GST Council fully exempted gene therapy treatments from GST. This decision is expected to significantly lower the cost of cutting-edge treatments, offering more accessible options for patients and reducing the financial burden of these advanced therapies.
Food Preparations for Free Distribution: A concessional 5 percent GST rate will now apply to food inputs supplied under various government schemes aimed at economically disadvantaged communities. These include food programs targeting malnutrition and other public welfare initiatives.
The reduced rate will ensure that essential food supplies can be distributed more efficiently without the additional burden of high tax.
Systems for Long-Range Surface-to-Air Missile (LRSAM) Assembly: To support national defense capabilities, the Council announced an exemption on Integrated Goods and Services Tax (IGST) for systems, sub-systems, and tools used in the assembly of Long-Range Surface-to-Air Missiles. This move is aimed at reducing the cost of defense infrastructure and enhancing the country’s defense preparedness.
Inspection Equipment for IAEA: The GST Council also granted an IGST exemption on imports of equipment and consumables used for inspection by the International Atomic Energy Agency (IAEA).
This decision underscores India’s commitment to supporting global nuclear safety standards while ensuring that the inspection process remains free from excessive tax burdens.
Pepper and Raisins (Supplied by Agriculturists): In line with efforts to support local farmers and agricultural producers, the GST Council clarified that pepper and raisins sold directly by agriculturists will not attract any GST. This exemption ensures that small farmers and producers can benefit from reduced tax burdens on their direct sales.
Items Getting Costlier
Despite several measures aimed at reducing costs, some goods and services are now set to become more expensive following the GST Council’s decisions.
Old and Used Vehicles (Including EVs): GST on the sale of old and used vehicles, including electric vehicles (EVs), has been increased from 12 percent to 18 percent. However, this increase will not apply to certain petrol and diesel variants that meet specific criteria. The rise in tax on pre-owned vehicles is expected to increase the cost of buying used vehicles and may influence the resale market for automobiles.
Ready-to-Eat Popcorn: Pre-packed and labeled ready-to-eat popcorn will now be subject to a 12 percent GST rate. The GST rate will increase to 18 percent if the popcorn is caramelized. The tax changes differentiate between various types of ready-to-eat snacks, with “ready-to-eat popcorn” mixed with salt and spices attracting a lower tax rate of 5 percent when sold unpackaged. This distinction will likely have an impact on snack packaging practices and pricing for consumers.
Autoclaved Aerated Concrete (ACC) Blocks: ACC blocks, which are lightweight building materials often used in construction, will now attract a 12 percent GST rate if the blocks contain more than 50 percent fly ash content.
This change could increase the overall cost of construction for builders and developers using these eco-friendly materials, despite their advantages in terms of energy efficiency and sustainability.
Sponsorship Services by Corporates: In a key administrative shift, sponsorship services provided by corporates are now covered under the Forward Charge Mechanism, which brings additional compliance responsibilities. This move is likely to increase the financial obligations for corporate sponsors, making sponsorship arrangements more expensive.
Penalty-Only Appeals: The Council has also adjusted the process for penalty-only appeals under the Appellate Authority. A higher pre-deposit will now be required for such appeals, which could increase the financial burden on taxpayers contesting penalties without other significant tax disputes.
Other Notable Changes
Apart from the adjustments to tax rates and the addition of new exemptions, several administrative changes and updates were proposed during the meeting that will impact businesses, individuals, and certain sectors in India.
Vouchers: The GST Council recommended the removal of GST on the transaction of vouchers, as they do not fall under the category of either goods or services. This move clarifies the status of vouchers under GST law and will simplify the process for businesses dealing with vouchers as a method of payment.
Penal Charges: The Council clarified that no GST is payable on penalties levied by banks and Non-Banking Financial Companies (NBFCs) for non-compliance with loan terms. This change will come as a relief to financial institutions and consumers, as it removes the tax burden on penalties for violating financial agreements.
Definition Update: A major administrative revision was announced, updating the definition of “pre-packaged and labelled” goods.
The updated definition will now cover all commodities intended for retail sale that contain no more than 25 kg or 25 liters of product and which carry labels in compliance with the Legal Metrology Act. This update aims to provide clearer guidance on the categorization of products that fall under pre-packaged and labelled goods, aiding in more consistent tax application.
The 55th GST Council meeting thus brought in several changes that seek to balance consumer relief with business requirements.
By reducing taxes on essential goods, healthcare treatments, and defense-related materials, the government is making strides to lower the financial burdens on citizens and industries in critical areas.
However, the increased tax on old vehicles, ready-to-eat snacks, and construction materials may lead to rising costs for consumers and businesses, signaling an evolving tax environment as India continues to refine its Goods and Services Tax regime.
