GST Council's 55th Meeting: Key Decisions and What They Mean for Businesses
On December 21, 2024, the 55th GST Council meeting, chaired by Union Finance Minister Smt. Nirmala Sitharaman, took place in Rajasthan. Key decisions were made to address GST rate changes, provide relief to businesses, and facilitate smoother compliance processes. Several significant recommendations were made to address pressing issues related to GST tax rates, trade facilitation, and compliance measures. Let’s dive into some of the important changes announced during this meeting.
Changes in GST Tax Rates on Goods & Services
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Changes
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Details
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Exemption on Gene Therapy
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In a move to support advanced medical treatments, the GST Council has decided to exempt GST on gene therapy, making these cutting-edge treatments more accessible.
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Fortified Rice Kernel (FRK) Tax Reduction
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The GST on Fortified Rice Kernel (FRK), classified under HS Code 1904, has been reduced to 5%. This is part of efforts to make essential food items more affordable.
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IGST Exemption for Defence Systems
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The meeting extended the IGST exemption to the systems, subsystems, equipment, and tools needed for assembling or manufacturing the Long Range Surface to Air Missile (LRSAM), boosting India's defense sector and local manufacturing.
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GST on Food Inputs for Government Programs
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A concessional 5% GST rate will apply to food inputs for food preparations intended for free distribution under government programs aimed at economically weaker sections.
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GST on Commercial Rent for Composition Taxpayers
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The Council decided to exempt composition taxpayers from reverse charge mechanism (RCM) on the rental of commercial immovable properties by unregistered persons. This change also regularizes the period from October 2024 until the issuance of the new notification.
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Revised GST Rate on Used and Old Vehicles
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The GST rate on used vehicles, including EVs, has increased from 12% to 18%. The tax applies only to the margin (purchase-sale price difference) and excludes transactions with unregistered sellers.
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Adjustments to Existing GST Provisions
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Change
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Details
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Restaurant Services in Hotels
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One of the most significant changes is related to GST on restaurant services in hotels. The tax rate will depend on the "value of supply" of the hotel’s accommodation services. If the accommodation value exceeds ₹7,500 per unit, the GST rate on restaurant services will be 18% with Input Tax Credit (ITC). For accommodation with a value below ₹7,500, the rate will be 5%, with no ITC.
Hotels can choose to pay the 18% GST with ITC by declaring it before the start of the financial year. These changes will take effect from April 1, 2025.
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Definition of 'Pre-packaged and Labelled' Goods
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The GST Council has amended the definition of ‘pre-packaged and labelled’ goods. From now on, all commodities that are intended for retail sale and weigh no more than 25 kg or 25 liters will fall under this definition. This change ensures clarity on which goods will be subject to GST, aligning with the Legal Metrology Act’s requirements.
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Popcorn GST Clarifications
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A significant clarification was issued regarding the GST rates for popcorn. It was clarified that ready-to-eat popcorn mixed with salt and spices will attract 5% GST, provided it is sold unlabelled. However, if it’s pre-packaged and labelled, it will be subject to 12% GST. Additionally, caramel popcorn, which is classified as sugar confectionery, will attract 18% GST. This measure aims to resolve discrepancies in the interpretation of GST on popcorn.
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Key Initiatives for Trade Facilitation and Compliance
- Track and Trace Mechanism for Evasion-Prone Commodities- To enhance compliance and curb tax evasion, the Council approved the insertion of a new provision for the Track and Trace Mechanism. This system will require certain high-risk commodities to have unique identification markings, ensuring goods can be traced throughout the supply chain.
- GST on Vouchers- In a move to simplify GST rules, the Council decided to omit certain sections related to the taxability of vouchers, resolving ambiguities around their treatment. Vouchers distributed on a principal-to-principal basis will not be subject to GST. Commission or fees charged by agents for distributing vouchers are taxable under GST. GST will not apply to unredeemed vouchers.
- Change in GST Appeal Provisions- The Council made amendments to ease the process for taxpayers appealing against penalties. The pre-deposit requirement for appeals involving only penalty (without tax demand) has been reduced from 25% to 10%, making it more accessible for small businesses.
Looking Ahead
The 55th GST Council meeting marked a pivotal step in refining the GST structure to better address the evolving needs of businesses, trade, and compliance. These recommendations, once implemented, will likely provide much-needed relief to businesses, simplify procedures, and promote greater efficiency in the Indian tax system. With many changes set to take effect from April 2025, businesses must stay updated and prepare for smoother transitions in the coming months.