55th GST Council meeting : What to expect and why this meeting could be crucial?

The upcoming 55th GST Council meeting, scheduled to meet on December 21, 2024, is expected to address a range of significant issues that have been lingering for a considerable time. The GST Council is expected to address several pivotal reforms focussed towards inverted duty structure, GST rate rationalization that will make an impact on the economy and meeting the goal of minimising cascading effect in GST.

Reforms related to GST rate rationalization aims to reduce cascading effect of taxes by merging tax slabs, litigation revolving around the issue and other issues related to input tax credit (ITC), leading to construction of a fluid and effective tax environment. The primary concern is blockage of working capital due to accumulated ITC, leading to liquidity issues. This necessitates the need to rationalizing tax rates, ensuring lower tax rates for raw materials in comparison to final goods, streamlining of refund process to improve cash flow, and simplifying compliance requirements.

Pursuant to the 45th GST Council, the Group of Ministers (GoM) Committee was established to address the issue of inverted duty structure in major sectors and undertake GST rate rationalization. This includes correcting the inverted duty structure to simplify the rate structure, reduce classification-related disputes, and enhance GST revenues. The GoM on Rate Rationalization was also tasked with reviewing instances of the inverted duty structure, aside from those already addressed by the Council, and recommending suitable rates to minimize instances of refunds due to the inverted duty structure.

GST rate rationalisation 

Presently, 18% GST is applicable on premiums paid towards health and life insurance policies. It is expected that the GoM constituted in the 54th Council meeting to review the tax rates on insurance premiums will submit its report in the 55th Council meeting for discussion on eliminating the 18% rate on term insurance plans and health insurance policies, particularly for senior citizens and coverage plans up to INR 5 lakh. It is expected that GoM will strike a balance between exemption, reduction in rates and estimated revenue loss. A reduction in GST rate on health and life insurance is going to make insurance more affordable and accessible for the general public, particularly when penetration of insurance in India is just 1%, compared to the global average of 4%.

Further, there have been lot speculations going on wrt a new GST rate of 35% for specific goods such as aerated drinks, tobacco, cigarettes and related products. The proposed structure ensures that essential goods remain affordable, while luxury items and demerit goods like tobacco and alcohol are taxed at higher rate. This approach aligns taxation with social policy goals.

However, the CBIC on December 3, 2024 has clarified that GoM constituted on GST rate rationalisation has not yet submitted its recommendations to the GST Council. Therefore, speculations related to change in GST rates and new slab rate of 35% is totally false and pre-mature. Thus, what remains to be seen is whether the GST Council is going to give a definitive timeline towards correction of inverted duty rate structures and provide much needed relief for the masses owing to high GST rates on goods of mass consumption that have a direct impact on affordability of such goods within the public at large. 

Taxability of Food Delivery Charges

In the recent past, the Directorate General of GST Intelligence (DGGI) had issued notices to major food delivery companies alleging huge GST liability on delivery charges collected from customers. Post which, the fitment committee was assigned the task of determining taxability of food delivery charges in relation to food ordered online through food delivery apps such as Zomato, Swiggy etc. It is expected that its recommendations will be placed for discussion in the next GST Council meeting. This is important since this will provide the much-needed clarity on the Council’s stand regarding taxability on food delivery charges and GST registration threshold for delivery partners which will definitely help resolution of the tussle between the revenue and this sector.

Inclusion of Petroleum Products

Presently, products (petroleum crude, high speed diesel, motor spirit, aviationturbine fuel, natural gas and alcoholic liquor for human consumption) are outside the ambit of GST despite numerous representations made by this sector. Further recently, Extra Neutral Alcohol has also been brought outside the purview of GST.

Out of these, it is expected that discussion to at least include ATF and Natural gas under the purview of GST. This has been a focal point before every GST Council meeting since Petroleum and oil companies are advocating for including ATF and Natural gas under GST. By bringing ATF under GST, airline companies will take ITC on purchase of ATF and gas companies, city gas distribution network and industrial user companies will avail ITC of the GST applicable on procurement of natural gas, which will lead to potentially lowering their operational cost and increasing price efficiency. The Central Government is positive of its discussions with the State Governments about bringing Natural Gas and ATF under the purview of GST. Achieving this goal would help make the concept of ‘one nation, one tax’ closer to reality.

The decisions and recommendations from the 55th GST Council meeting will be closely watched, given their potential to impact taxation, trade, and the overall financial landscape in India. Reforms in areas such as insurance premiums, GST rates could provide much-needed clarity and relief to businesses and consumers alike. As the Council deliberates on these critical issues, the outcomes will play a crucial role in shaping the future of GST in India, aiming to create a more streamlined and efficient tax system.