The 55th GST Council meeting, chaired by Union Finance Minister Nirmala Sitharaman on Saturday, introduced a comprehensive set of changes to the Goods and Services Tax (GST) framework, which will have wide-ranging implications for various sectors of the economy. These decisions were aimed at making the tax system more efficient, ensuring that it remains adaptable to emerging challenges, and promoting fairness by addressing long-standing ambiguities. The changes cover a wide spectrum, from streamlining tax processes and reducing the financial burden on consumers to enhancing the focus on compliance and revenue generation.
What’s Getting Cheaper?
Several key items and services will now be subject to reduced GST rates, providing much-needed financial relief, particularly to vulnerable sections of society and sectors requiring special support:
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Fortified Rice Kernels (FRK): In a major step to ensure better nutritional access for economically disadvantaged sections of society, the GST rate on FRK, when supplied through the Public Distribution System (PDS), has been reduced to 5%. This decision aims to promote the consumption of fortified rice, which is crucial for addressing malnutrition in the country.
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Gene Therapy: As part of an effort to make cutting-edge medical treatments more affordable and accessible to the public, the GST on gene therapy has been completely exempted. This move will make it easier for patients requiring advanced treatments to access potentially life-saving therapies without the burden of additional taxation.
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Food Preparations for Free Distribution: Inputs used for preparing food to be distributed under government schemes targeting economically vulnerable sections will now be taxed at a concessional 5% GST. This reduction is designed to help support the government's efforts to provide food assistance to marginalized communities, enhancing social welfare programs like midday meals, food relief schemes, and similar initiatives.
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Systems for Long Range Surface-to-Air Missile (LRSAM) Assembly: The GST Council has exempted Integrated Goods and Services Tax (IGST) on systems, sub-systems, and tools used for LRSAM manufacturing. This move is aimed at boosting the defense sector by reducing the costs associated with advanced missile systems and other high-tech defense-related manufacturing processes.
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Inspection Equipment for IAEA: Imports of specialized inspection equipment and consumable samples required by the International Atomic Energy Agency (IAEA) for regulatory oversight have also been exempted from IGST. This decision aligns with international regulatory compliance requirements and will facilitate easier importation of equipment necessary for maintaining global nuclear safety standards.
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Pepper and Raisins (Direct Sales): In an effort to further support the agricultural sector, pepper and raisins sold directly by agriculturists will now be exempt from GST. This clarification will help reduce the tax burden on agricultural producers, particularly those selling their products directly to consumers, bypassing middlemen.
What’s Getting Costlier?
While there are many reductions in GST rates, some items and services will now attract higher taxes, leading to increased costs for consumers. The changes are mostly aimed at optimizing tax collection and reducing tax loopholes:
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Old and Used Vehicles (Including EVs): The GST rate on the sale of old and used vehicles has been increased from 12% to 18%, with the exception of certain petrol and diesel variants. This change is expected to impact the second-hand vehicle market, making used cars, including electric vehicles (EVs), more expensive for consumers. However, this move is aimed at enhancing tax revenues from the booming used vehicle market.
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Ready-to-Eat Popcorn: Pre-packaged and labeled ready-to-eat popcorn will now attract a 12% GST, while caramelized popcorn will be taxed at 18%. Non-pre-packaged and labeled popcorn, which is sold as "namkeens," will continue to attract a lower 5% GST. This increase may affect the pricing of snack items in retail outlets, with a potential impact on consumer spending habits in the snack food sector.
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Autoclaved Aerated Concrete (ACC) Blocks: ACC blocks containing more than 50% fly ash will now be taxed at 12%. This change is likely to increase construction costs, particularly for builders and contractors who utilize these blocks in eco-friendly construction projects. The move is aimed at bringing more consistency to the taxation of construction materials.
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Corporate Sponsorship Services: Corporate sponsorship services have been included under the Forward Charge Mechanism, which will likely lead to an increase in costs for businesses looking to sponsor events or activities. This change aims to ensure that the GST is levied more uniformly across all sectors, including those related to corporate marketing and branding.
Other Policy Updates
In addition to tax rate changes, several policy clarifications have been issued to streamline processes and resolve ambiguities that have long existed in the GST system:
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Vouchers: The Council clarified that transactions involving vouchers, which were previously a subject of confusion, will not be considered a supply of goods or services, thus exempting them from GST. This clarification is expected to provide greater clarity for businesses that deal with voucher-based transactions.
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Penal Charges: In a move to ease the financial burden on borrowers, it has been decided that penalties imposed by banks and non-banking financial companies (NBFCs) for non-compliance with loan terms will not attract GST. This decision provides relief to borrowers, especially those in the middle of loan repayments who are subject to additional penalty charges for delayed payments.
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Definition of ‘Pre-Packaged and Labelled’: The definition of “pre-packaged and labeled” has been updated to align with the provisions of the Legal Metrology Act. It now covers commodities intended for retail sale that contain not more than 25 kg or 25 liters and require mandatory labeling under the Act. This change is aimed at improving clarity regarding the packaging and labeling requirements for a wide range of retail products.
These changes reflect the government's ongoing efforts to improve the GST framework, enhance compliance, and ensure that the system remains responsive to the evolving needs of various sectors. While some of these adjustments are intended to reduce costs and improve affordability, others focus on ensuring that businesses comply with tax regulations while optimizing revenue collection for the government. As these changes are implemented, they are expected to have a significant impact on businesses, consumers, and government finances alike, reshaping the tax landscape in the country.
