The 55th meeting of the Goods and Services Tax (GST) Council, held on Saturday, brought several important decisions that are expected to have a wide-reaching impact on multiple sectors of the economy. One of the key outcomes was the decision to impose an 18% GST on the margin value of used electric vehicles (EVs) sold by businesses. This decision aims to level the playing field for the taxation of used EVs and used non-electric vehicles, as businesses selling used vehicles will now be taxed similarly to businesses selling non-electric vehicles. The tax will be applicable only to the margin, which is the difference between the purchase price and the selling price of the vehicle, with depreciation being factored in if it has been claimed by the seller. This clarification comes after months of debate on the appropriate tax treatment for used EVs. It was emphasized that sales of used vehicles between individuals will continue to remain exempt from GST.
Another notable decision was the clarification on the taxability of popcorn, which has been a subject of confusion in recent months. The GST Council decided that caramelized popcorn will continue to attract a higher GST rate of 18%, while pre-packed and spiced popcorn will be taxed at 12%. Unpacked and unlabelled popcorn, on the other hand, will be taxed at a lower rate of 5%. This differentiation in rates is intended to clarify the tax treatment of various types of popcorn products that are sold in the market. The decision also provides much-needed certainty for manufacturers and traders in the food processing industry. The Council noted that these changes would be implemented on an "as-is-where-is" basis, meaning they would settle past disputes and apply to all future transactions involving popcorn.
The Council also took a step towards reducing the tax burden in certain sectors. One of the major announcements was the reduction of the GST rate on fortified rice kernels used in public distribution schemes. The GST rate on fortified rice kernels will be lowered from 18% to 5%, which is expected to make it more affordable for the government to distribute fortified rice as part of welfare programs. This move aligns with the government's broader goal of tackling malnutrition and promoting nutritional security for vulnerable populations.
In another important development, the Council decided that no GST will be applicable on penal charges levied and collected by banks and non-banking financial companies (NBFCs) from borrowers who fail to comply with the terms of their loans. This decision comes as part of a broader move to exempt certain financial services from GST, particularly those charges that are not linked to the actual provision of loans. The move is expected to reduce compliance costs for banks and NBFCs while ensuring that borrowers are not subjected to additional tax burdens.
Despite these important decisions, the GST Council chose to defer several key issues, including the reduction of tax rates on insurance premiums and the taxation of food delivery services provided by app-based platforms. The insurance industry had been pushing for a reduction in GST rates on premiums, particularly for term life insurance policies and health insurance coverage for senior citizens. A group of ministers (GoM) had earlier recommended exempting premiums on term life insurance and for senior citizens, as well as lowering GST rates on health insurance premiums for individuals who have coverage of up to Rs 5 lakh. However, no final decision was made on this issue, as the Council chose to await comments from the sector regulator.
Similarly, the taxation of food delivery charges by quick-commerce and food delivery platforms remains unresolved. The issue revolves around whether the delivery charges should be taxed at the same rate as food, which currently attracts a 5% GST. While some stakeholders argue that the tax should be equivalent to the rate on food, others believe that it should be higher due to the nature of the services provided by these platforms. The GST Council has decided to defer this issue for further deliberation, with the Fitment Committee set to review it in the near future.
On the issue of aviation turbine fuel (ATF), the GST Council once again decided to keep it outside the GST regime, as it has been since the inception of GST in 2017. The GST Council's decision reflects the strong opposition from states, which have consistently argued that ATF should remain outside the purview of GST. This decision aligns with the existing structure, under which the central government levies excise duty on ATF and states impose VAT. States have expressed concerns about the potential loss of revenue if ATF were brought under GST, and their reluctance to make changes to the current system was a key factor in the decision to maintain the status quo.
Additionally, the Council discussed various issues concerning small businesses and the challenges they face in registering for GST. A concept note on this issue has received in-principle approval, and it is expected that amendments will be made to the GST Acts to ease the registration process for small businesses. These changes are likely to make it easier for small companies to comply with GST requirements, thereby reducing the administrative burden on them.
Another important decision was the formation of a new group of ministers (GoM) to examine the possibility of allowing states to levy a cess under GST to address financial distress caused by natural calamities. This decision was prompted by Andhra Pradesh's request to levy a 1% cess in the wake of severe floods in the state. The GoM will be tasked with evaluating the feasibility of such a measure, and finance ministers from Uttar Pradesh, Telangana, and West Bengal will be part of the group.
In summary, the 55th GST Council meeting saw a mix of significant decisions and some deferred issues. While the decisions on the taxation of used electric vehicles, popcorn, and fortified rice kernels are expected to provide clarity and reduce tax burdens in specific sectors, key issues such as the taxation of insurance premiums and food delivery services remain unresolved. The meeting highlighted the complexities of managing the GST system and the need for ongoing deliberation on various issues affecting different sectors of the economy.
