55th GST Council takes key decisions, defers rate cuts on insurance premium

GST Council addresses disaster levy, clarifies tax exemptions, and revises ITC norms, while deferring insurance premium GST cut and key rate rationalisation decisions

The 55th Goods and Services Tax (GST) Council meeting, held on Saturday in Jaisalmer, resulted in mixed decisions. A special request by Andhra Pradesh to discuss the levy of an additional 1 per cent GST, over and above the topmost 28 per cent rate in case of disasters, broadly modelled on the flood cess levied by Kerala in 2019, was deliberated. The Council agreed to refer the proposal for a special levy for disasters to a Group of Ministers (GoM). Additionally, the Council clarified that no GST is payable on ‘penal charges’ levied and collected by banks and non-banking financial companies (NBFCs) from borrowers for non-compliance with loan terms.

 

 

“The report on rate rationalisation is not final. On health and life insurance premiums, the GoM is awaiting inputs from the Insurance Regulatory and Development Authority of India (IRDAI). Only after receiving these inputs will they finalise their reports and submit them to the Council for discussion,” said Union Finance Minister Nirmala Sitharaman during the post-meeting press briefing.

 

Another key decision was related to the Supreme Court’s ‘Safari Retreats’ judgement. The Council decided to retrospectively amend the Central Goods and Services Tax (CGST) Act, reversing the Court's ruling, which had allowed input tax credit (ITC) claims on construction costs for rental properties.

 

The Council recommended replacing the phrase "plant or machinery" with "plant and machinery" retrospectively from July 1, 2017. This amendment addressed a potential revenue impact of around Rs 10,000 crore, which arose from the Court’s interpretation that the terms “plant and machinery” and “plant or machinery” in the CGST Act were distinct. The Court had ruled that ITC eligibility must be assessed case-by-case, considering the taxpayer’s business nature and the building's operational role.

 

“From an industry perspective, the retrospective amendment restricting ITC for construction-related expenses following the Safari Retreat ruling is significant. However, the Council’s decisions on easing business operations, such as reducing cess rates for merchant exporters and simplifying the registration process for small businesses, are welcome steps,” said Pratik Jain, Partner, PwC India.

 

Deferments and extensions

 

The decisions on reducing GST on life and health insurance premiums and on the much-anticipated rate rationalisation of 148 items were deferred, as the GoM panel required more time to finalise its reports, Sitharaman said.

 

The Council also extended the time frame for the GoM on restructuring GST compensation cess until June 30, 2025. Initially set to end in June 2022, the cess was extended to March 2026 to repay a Rs 2.7 trillion loan taken during the pandemic to cover revenue shortfalls.

 

Aviation turbine fuel remains outside GST

 

Discussions on bringing aviation turbine fuel (ATF) under the GST ambit continued, but states opposed the move. “States view ATF similarly to petrol, diesel, and other petroleum products and are unwilling to include these under GST,” Sitharaman explained.

 

Key tax adjustments

 

• The Council made several decisions on tax adjustments, including:
• Reducing the GST rate on fortified rice kernels from 18 per cent to 5 per cent.
• Exempting tax on gene therapy.
• Extending Integrated GST (IGST) exemption for components and equipment used in manufacturing Long Range Surface-to-Air Missile (LRSAM) systems.
• Reducing the compensation cess rate to 0.1 per cent on supplies to merchant exporters.
• Extending the concessional 5 per cent GST rate on food inputs supplied under government welfare schemes. 

The Council also clarified tax rates on ready-to-eat popcorn. Popcorn mixed with salt and spices attracts 5 per cent GST when not pre-packaged and labelled, and 12 per cent when pre-packaged and labelled. However, caramelised popcorn, classified as sugar confectionery, attracts 18 per cent GST.

 

The Council agreed to refer Andhra Pradesh's proposal for a 1 per cent additional GST levy for disasters to a new GoM panel. On the taxability of delivery charges collected by quick commerce platforms, the Council deferred its decision, leaving notices issued for non-payment of tax on such charges valid for now.

 

Additionally, the Council clarified that payment aggregators regulated by the Reserve Bank of India (RBI) are exempt from GST on payments below Rs 2,000. However, this exemption does not extend to payment gateways or other fintech services unrelated to fund settlement.

 

Mahesh Jaising, Partner and Leader, Indirect Tax, Deloitte India, said, “The retrospective amendment to Section 17(5) on ITC for plant and machinery post-Safari Retreat requires businesses to reassess. Recognising vouchers as actionable claims and exempting them from GST aligns with industry practices and improves trade efficiency. While ATF remains outside GST, the Council’s deferment of decisions on rate rationalisation and health insurance indicates that democratised tax reform is an ongoing process and will take time.”