 "54th GST Council meet: GoM to decide future of GST compensation cess")
The all-powerful Goods and Services Tax (GST) Council, during its meeting on Monday, made several key decisions that include establishing a state panel to examine the future of the compensation cess, proposing the treatment of cess collections post-loan repayment, expanding the existing state panel on rate rationalisation to address issues related to life and health insurance, and providing relief to foreign airlines.
The Council also decided to review the integrated GST through a panel of secretaries headed by the additional secretary of revenue.
“We have told them that the Group of Ministers (GoM) on insurance will look into this matter and submit a report by the end of October. The GST Council will finalise decisions based on this report in its November meeting,” said Finance Minister (FM) Nirmala Sitharaman while briefing the media after the Council meeting.
Punjab FM Harpal Singh Cheema mentioned that there was “near consensus” on fully exempting life and health insurance premiums from GST. However, it was decided to refer the matter to the expanded GoM on rate rejig.
Delhi Minister Atishi advocated for a reduction in GST on health insurance. There is consensus among states on the need to cut
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GST on health insurance, but further discussions are required. The decision on lowering GST on health insurance has been deferred.
Regarding the compensation cess, Sitharaman explained that it was legally extended only until March 2026. Originally intended for compensation-related purposes and to repay back-to-back loans, if the cess is paid off earlier, collections will cease as it was meant for the first five years only.
Future collections beyond this period will be reviewed by the GoM. Sitharaman indicated that the surplus from the compensation cess could reach roughly Rs 40,000 crore, potentially clearing back-to-back loan payments by early 2026.
Introduced to address states’ revenue shortfalls after GST implementation, the compensation cess was initially meant to be temporary but has now been extended until March 2026.
On the compensation cess, Punjab, West Bengal, and Kerala made suggestions, noting that revenue mop-up under GST is lower than in the pre-value-added tax regime.
The Council has addressed several industry concerns by clarifying tax treatment on various goods and services. This includes clarification on imported services and export status for data hosting and advertising, aimed at providing clarity for global investors and Indian businesses expanding in these sectors.
On exempting foreign airlines, Revenue Secretary Sanjay Malhotra said, “Another important decision was to exempt the import of services by a foreign airline establishment.” He further added that the Council also recommended regularising the past period on an as-is-where-is basis.
This move will provide considerable relief to foreign airlines that had received notices from the Directorate General of GST Intelligence (DGGI). The DGGI had previously sent show-cause notices to 10 foreign airlines operating in the country for alleged non-payment of tax amounting to Rs 10,000 crore.
“The exemption of GST on the import of services by related parties for airlines is a much-needed relief for the aviation sector. However, the shipping industry continues to face similar challenges that still need addressing,” said Saurabh Agrawal, partner at EY.
Moreover, the affiliation services provided by educational boards like the Central Board of Secondary Education were clarified. It was decided to regularise the past period between July 1, 2017, and June 17, 2021, on an as-is-where-is basis.
The Council also recommended exempting the supply of research and development services by government entities, research associations, universities, colleges, or other institutions. GST rates on essential items, such as cancer drugs and everyday food items like namkeens and savouries, were reduced, while the tax on car seats was increased to 28 per cent, aligning it with two-wheeler seats.
Another major development is the proposed extension of e-invoicing to the business-to-consumer (B2C) segment, with the introduction of mechanisms like an invoice management system.
“The voluntary introduction of B2C invoicing underscores the Council’s intent to foster relief, focus on environmentally friendly measures, and modernise GST compliance, particularly by incentivising refunds for foreign tourists. These progressive reforms represent a pivotal shift in India’s indirect tax landscape, balancing revenue generation with economic facilitation,” said Mahesh Jaising, partner and leader of indirect tax at Deloitte India.
Regarding GST on online gaming, the Council discussed the rise in online gaming revenues following the imposition of a 28 per cent tax since October 2023.
Sitharaman announced on September 9 that revenue from online gaming has surged by 412 per cent, with collections reaching Rs 6,909 crore in just six months. Casinos also saw a 30 per cent increase in revenue during the same period.