New Delhi, 22 December 2024: In a considerable development for businesses and individuals across India, the 55th GST Council meeting, chaired by Union Finance Minister Nirmala Sitharaman, unveiled a series of recommendations designed to ease the taxation process and provide financial relief. The key decisions, which will impact both the consumption and production of goods and services, include a range of tax reductions, new exemptions, and some increased tax rates.
Tax Reductions and Exemptions
Several categories of goods and services will benefit from reduced taxes, aiming to lighten the economic burden on the most vulnerable sections of society, as well as promote certain industries.
Fortified Rice Kernels (FRK): Aimed at improving nutrition among economically disadvantaged groups, the GST on Fortified Rice Kernels (FRK), when distributed through the Public Distribution System (PDS), has been cut to just 5 percent. This reduction will make fortified rice more accessible to the weaker sections of society.
Gene Therapy: In a breakthrough move for healthcare, the GST Council has completely exempted gene therapy treatments from taxation.
By eliminating this tax, the government aims to make such groundbreaking treatments more affordable and accessible to patients in need.
Food Preparations for Welfare Programs: Food inputs used in government-run programs targeting economically disadvantaged communities will now face a concessional 5 percent GST rate. This applies to items distributed under welfare schemes and food programs aimed at alleviating poverty and combating malnutrition.
Defense Equipment for LRSAM Assembly: The Council approved an exemption on Integrated Goods and Services Tax (IGST) for systems and components used in the assembly of Long-Range Surface-to-Air Missiles (LRSAM). This tax relief is seen as a step to bolster the country’s defense sector, reducing the cost of production for advanced defense equipment.
IAEA Inspection Equipment: To support India’s commitment to nuclear safety and international protocols, GST was waived on imports of equipment and consumables used for inspections by the International Atomic Energy Agency (IAEA).
Pepper and Raisins (Sold by Farmers): GST will no longer be applicable to the direct sale of pepper and raisins by agriculturists. This move aims to boost the earnings of farmers and reduce unnecessary tax burdens on agricultural goods sold by the producers themselves.
Goods and Services Becoming More Expensive
While many goods are set to become more affordable, the GST Council also implemented tax hikes in certain sectors.
Used Vehicles (Including EVs): The GST rate on all used vehicles, including electric vehicles, has been raised from 12 percent to 18 percent. However, specific exceptions may apply to some petrol and diesel variants. This adjustment aims to align the tax on second-hand vehicles with current market trends but may have a cascading effect on vehicle prices and the resale market.
Ready-to-Eat Popcorn: Popcorn sold as pre-packed and labeled ready-to-eat snacks will now attract a 12 percent GST, up from a previous rate of 5 percent for untaxed versions.
Caramelized popcorn will face an even higher rate of 18 percent. This change seeks to classify and tax processed snacks more consistently, although it is expected to slightly raise prices for consumers.
Autoclaved Aerated Concrete (ACC) Blocks: Construction materials like ACC blocks will now incur a 12 percent GST if they contain more than 50 percent fly ash content. This shift will likely affect the construction industry, making certain eco-friendly building materials slightly more expensive.
Corporate Sponsorship Services: Corporate sponsorship services will now fall under the Forward Charge Mechanism, potentially resulting in higher costs for companies involved in sponsorship deals. This change brings additional compliance requirements for businesses and may increase the cost of marketing and sponsorship arrangements.
Penalty-Only Appeals: In a revision to tax appeal procedures, the GST Council has recommended a higher pre-deposit requirement for penalty-only appeals under the Appellate Authority, which could significantly increase the financial strain on businesses contesting penalty decisions.
Additional Revisions and Clarifications
Apart from the tax rate changes, the Council also introduced some critical administrative clarifications aimed at simplifying procedures and providing clarity in various sectors.
Vouchers and Their GST Status: The Council decided that no GST will be levied on the transaction of vouchers, as they are not classified as either goods or services. This decision provides much-needed clarification to businesses and consumers handling voucher-based transactions.
Penalties and Charges: The GST Council also clarified that no GST will be applicable to penalties charged by banks and Non-Banking Financial Companies (NBFCs) for violations of loan terms. This ensures that customers and financial institutions will not face an additional tax burden on penalty payments for non-compliance with loan conditions.
Update on ‘Pre-Packaged and Labelled’ Definition: In an update to the Legal Metrology Act, the GST Council revised the definition of “pre-packaged and labelled.” Now, commodities intended for retail sale that are pre-packed and contain no more than 25 kg or 25 liters of product will be subject to the regulations of the Act. This updated definition aims to create clearer guidelines for packaging and labelling in the retail sector.
The decisions taken at the 55th GST Council meeting reflect the government’s ongoing efforts to refine and improve India’s tax system. On one hand, these changes are poised to benefit consumers through lower taxes on essential products, medical treatments, and food security programs. On the other hand, certain sectors, such as used vehicles, processed snacks, and construction materials, are facing increased taxes, signaling an ongoing effort to balance tax revenues with industry growth.
The clarification on the status of vouchers, as well as the penalty provisions, also indicates a push to improve compliance and streamline tax administration. The GST Council’s work in updating the definitions and fine-tuning tax rates promises to keep India’s tax system dynamic, responsive, and more aligned with global standards.
As the nation moves forward, businesses and consumers alike will be keenly watching how these changes are implemented and how they affect day-to-day transactions and long-term economic growth.
