The 49th GST Council meeting was presided over by Union FM Nirmala Sitharaman in New Delhi on 18th February 2023. It was the first meeting after the presentation of Budget 2023 and the third meeting to take place in the same month as the Budget presentation, following similar meetings in 2017 and 2019. The meeting saw the acceptance of two GoM reports and the announcement of several decisions.
Highlights from the 49th GST Council Meeting
During the meeting, several decisions were made by the council, including:
- Two GoM reports were accepted with minor modifications.
- Clearance of all GST compensation dues since June 2022, to be funded using own resources and future revenues.
- GST rate cut on Rab/Liquid jaggery from 18% to nil (loose) or 5% (labeled/packaged).
- GST on pencil sharpeners was reduced from 18% to 12%.
- The GST rate for tracking devices affixed to durable containers has been reduced to zero, but this is subject to certain conditions.
- Additionally, services provided by courts and tribunals will now be taxed under the reverse charge mechanism (RCM).
- Exemption is granted to educational institutions and Central and State Educational Boards for conducting entrance exams.
- Late filing fees for annual returns have been rationalized.
- An amnesty has been announced for GST returns GSTR-4, GSTR-9, and GSTR-10.
- A special composition scheme has been introduced for certain sectors.
- Recommendation to revise Section 62 (Best Judgement Assessment).
- In certain cases, there is now a provision for the withdrawal of assessment orders subject to specific conditions.
However, the council could not discuss some issues, including MUV classification, GST on cement, and GST on millet-based health products, due to a shortage of time. The GoM report on online gaming was also not taken up due to the absence of the FM heading the committee.
The council recommended a revision in how the selection of members of the judicial panel for the appellate tribunal is carried out, with a need for more state representation.
The Finance Minister announced that the GST Council has provided significant relief to students taking competitive exams by exempting National Taxing Agencies from GST. This means that examination fees will no longer be subject to GST, which currently stands at 18%. Additionally, the GST Council has decided to impose a GST tax on production.
The GoM report on pan masala was accepted with a special composition scheme and capacity-based taxation.
Expectations from the 49th GST Council meeting
Here are some of the anticipated results of the upcoming meeting.
Report on GST for Pan Masala from the GoM
At the forthcoming Council meeting, the Group of Ministers (GoMs) may present its findings on the taxation of the ‘Gutkha/chewing tobacco’ and ‘Pan Masala’ industries. While ‘GST on Pan Masala’ was on the agenda for the 48th meeting, the report could not be discussed.
The GoM for Pan Masala was established to evaluate the feasibility and advantages of implementing a capacity-based assessment system for levying GST on Pan Masala and comparable goods. In addition, the reimbursement of accumulated Input Tax Credit (ITC) for exports of these items will be authorized, subject to a letter of undertaking.
The GoM report on online gaming and related activities may not be included in the agenda of the upcoming GST Council meeting, according to recent media reports.
The GoM, headed by Meghalaya Chief Minister Conrad Sangma, was set to present the final report on GST for online gaming at the meeting. However, the GoM members could not reach a consensus on the base value for tax applicability.
The latest report, issued in late 2022, is expected to be similar to the initial report submitted earlier that year, except for the divergent opinions mentioned above. The first report recommended a fixed 28% GST rate on horse racing, casinos, and online gaming, as well as a base value for taxation.
Currently, online gaming is subject to two different GST rates: 18% for skilled games without betting and 28% for games of chance, such as betting and gambling. The issue at hand is determining the base value for computing GST, which the GoM could not agree on.
As a result, the GST Council may not address this issue during the upcoming meeting.
The Finance Minister was urged by various industrial associations to reduce tax rates on several products before the Budget of 2023. One of these products is the input for Electric Vehicles (EVs), which is lithium-ion battery cells and packs. The industry anticipates a rate cut from the current 18% to 5% to promote domestic EV manufacturing in India and increase consumption.
Although the media reported a potential GST rate cut on cement, it may not be decided upon at the upcoming GST Council meeting. However, the fitment committee may bring it up for discussion.
The fitment committee has suggested that millet-based health products with over 70% millet content should be taxed at a nil GST rate when supplied in loose form, while a 5% GST rate should be applied when supplied in pre-packaged and labeled form.
The increase in the GST rate on pencil sharpeners, which was done earlier to address the inverted tax structure, may be reviewed at this Council meeting, particularly since schoolchildren primarily use it. It may be reduced to 12% from 18%.
The textile industry is still grappling with an irrational inverted tax structure that harms business. While the fabric attracts a 5% GST rate, the yarn and polyester chip are taxed at 12% and 18%, respectively. Experts suggest that the government should establish a uniform tax rate for the entire textile product range.
Many insurers have demanded a reduction in the GST rate on health insurance and certain life insurance products from 18%, as it lowers the premium cost and makes it more affordable for policyholders.
The hospitality industry has requested that all rooms be taxed at 12% in Budget 2023. At present, the government imposes a GST rate of 12% on hotel rooms with a price tag of up to Rs 7,500, while hotel rooms priced above Rs 7,500 attract a GST rate of 18%. Additionally, the hospitality industry desires the full input tax credit claim in line with global standards, which is currently only available if the hotel booking is in the same state as the GST-registered state of the business.
Furthermore, the GST Council may introduce steps to mandate the registration of machinery, require specific monthly GST returns that include details on the machinery, clearance, inputs, and special compliance guidelines, such as mandatory e-invoicing, e-way bills, GPS installation or FAST tags, unique identification markings, CCTV camera installation, and substantial penalties for non-compliance.
