GST Council Meeting: Significant modifications to GST rates and compliance measures

On July 11, after its
50th meeting, which was led by Finance Minister Nirmala Sitharaman, the GST
Council made a number of important suggestions about changes to GST tax rates,
ways to make trade easier, and streamlining compliance processes.

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In response to
suggestions about the GST rates on goods, the rate on uncooked/unfried snack
pellets will go down from 18% to 5%. It also agreed not to charge IGST on
imported medicines and Food for Special Medical Purposes (FSMP) used to treat
rare diseases listed in the National Policy for Rare Diseases, 2021. It was
also decided to make it clear that farmers are taxed when they give unions raw
cotton, including kala cotton. 

GST on thread or yarn that looks like zari has
been cut from 12% to 5%. The council also agreed to cut the GST rate on LD slag
from 18% to 5% to encourage better use of this product and protect the
environment. LD slag is a byproduct of the steel business. It is made when LD
converters are used to refine pig iron. Most of the time, there are a lot of
useful metals and materials in the byproducts. Most of the materials from steel
plant trash are recycled in most countries by making sinter.

Also, the GST rate on
fish liquid paste went down from 18% to 5%.

Saurabh Agarwal, Tax
Partner at EY, says that the GST council also cut the GST rate on food served
in movie theatres from 18% to 5%. The GST Council’s move to charge 5% GST on
food and drinks sold in movie theatres is good news for both consumers and
businesses.

This is good news for
the Indian economy because it will lead to more spending by consumers and more
investment in the entertainment industry. It also shows that the GST Council
wants to make the tax system easier to understand and more business-friendly.

In order to facilitate
the constitution and operation of the proposed GST Appellate Tribunal, the GST
Council has also recommended the rules regulating the appointment and
conditions of the President and Members. It also recommended that the
relaxations provided for various tables of FORM GSTR-9 and FORM GSTR-9C in FY
2021-22 be maintained in FY 2022-23.

In addition, for the
purpose of easing the compliance burden on smaller taxpayers, the exemption
from submitting an annual return for taxpayers with a total annual turnover of
up to 2 crore rupees should be continued for FY 2022-23. A circular will be
issued to clarify TCS’s liability in cases where various e-commerce
companies (ECOs) have a role in a single transaction involving the supply of
products or services or both.

In the meantime, the
GST Council announced measures clarifying that holding securities of a
subsidiary company by a holding company cannot be considered a supply of
services and is therefore not subject to GST. This will be a substantial relief
to taxpayers and will also put to rest the controversy surrounding the specific
entry in Services Accounting Code 997171, which encompasses Services of holding
equity of subsidiary companies. 

While this is the first of its kind, there is
still a great deal of debate and ambiguity surrounding the presumed supply
provisions for international transactions. Partner at Deloitte India, Mahesh
Jaisingh, stated that the industry should continue to engage policymakers on
these issues.

In addition, he
clarified that input service distributor is a concept derived from the Service
Tax regime, which mandates that input tax on common services be distributed to
various registrations of the same PAN in accordance with the regulations.

The GST Council
recommended that the Centre notify the GST Appellate Tribunal as of August 1,
2023. It appears that the government will put out a detailed road map for the
operation of the GST Tribunal in phases. This significant development will reduce
the load on the High Courts and allow businesses to seek recourse through
tribunals rather than the High Courts, according to Saurabh Agarwal.

In addition, he
applauds the Council’s recommendation to make the Input Service Distributor
(ISD) mechanism optional for the distribution of input tax credit for commonly
procured third-party input services. This will bring clarity to the taxation of
these services and resolve any tax disputes arising from cross-charge versus
ISD.

“The Council
additionally suggested that changes be made that would make ISD necessary
prospectively, giving companies time to implement the change,” he
explained.

Previously, according
to data released by the department, India’s GST collection increased by 12
percent year-over-year in June, reaching Rs 1.61 lakh crore.

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