The highly anticipated and much awaited 55th GST Council meeting held on 21st December concluded without any substantial deliberation on most of the long pending agenda. There have been certain important clarifications/recommendations deliberated in the meeting including taxability of transactions in vouchers, no GST on penal charges levied on loan defaulters, supply of sponsorship services provided by the body corporates under Forward Charge Mechanism, increase in GST rates for sale of old and used cars including EVs etc., but nothing significant on any of the undecided matters pending since a long time.
The GST Council has clarified that transactions in vouchers shall be treated neither as a supply of goods nor as a supply of services. It is clarified that the distribution of vouchers on a principal-to-principal basis shall not be subject to GST, only when they are distributed on the principal-to-agent basis, the commission/fee or any other amount charged by the agent for such distribution is taxable under GST. The clarification will hopefully help resolve the long-standing ambiguity about the taxability of vouchers.
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To put an end to long-drawn litigation, the Council has clarified that no GST is payable on ‘penal charges’ levied and collected by banks and NBFCs from borrowers for non-compliance with loan terms.
Further, the Council has clarified that caramelised popcorns will attract the tax rate of 18% which means rate of tax for popcorns shall be 5% for salty popcorns which are not pre-packed / labelled, 12% for pre-packed and labelled ones and 18% for caramelised popcorns.
The recommendation is in sharp contrast to the overall GST tax structure aiming for simplification and ease of compliance. The Council has decided to increase the GST rate from 12% to 18% on sale of all old and used vehicles including EVs.
The burning issues not deliberated upon and remains unaddressed in this council meeting are:
1. Restructuring and rate rationalisation for Insurance sector: The council meeting was expected to have a significant focus on the insurance sector and to deliberate on reducing the tax rates for life and health insurance premiums. However, the decision has been deferred to the next GST council meeting. The proposed rate rationalisation would make opting for insurance policies affordable and enable wider coverage. Hopefully, the council will conclude on this aspect in the upcoming meeting, considering its widespread impact on the insurance sector.
2. GST Rate Rationalisation and inverted duty correction: Discussions on reducing the present four tax slabs (5%, 12%, 18% and 28%) to possibly three tax slabs have been going on for a while now and measures around rate rationalisation was expected from the council meeting. Further, the correction for inverted duty structure is definitely the need of the hour considering its wider impact on trade and industry. However, these issues remained unaddressed.
3. Fate of GST Compensation Cess: The GST council has agreed to provide more time to GoM till 30th June 2025 to evaluate and deliberate on extension of GST Compensation Cess after March 2026. The Compensation Cess was imposed for a specified period during the inception of GST and has been continued so far. The extension allowed is coming to an end in March 2026 and further extension will have significant negative impact on affected sectors falling under the specified category like automative, aerated beverages etc.
4. Food delivery e-commerce: There will be further deliberation and discussion by Fitment committee on the matter and hence the decision on revising tax rates for food delivery through e-commerce has been deferred.
5. Inclusion of Aviation Turbine Fuel: No consensus has been arrived on this and hence the same remains outside the GST framework at present.
As the 55th GST Council meetings could not be concluded on various aspects, the trade and industry is waiting for much conclusive and decisive 56th GST Council Meeting to be held in January 2025. The upcoming meeting will also focus on the Budget 2025-26 as state finance ministers may propose their recommendations for the upcoming budget/
The author is a Partner at Bhuta Shah & Co LLP.