Key Outcomes and Announcements from the 40th GST Council Meeting
The 40th GST Council meeting, held in June 2020 amidst the COVID-19 pandemic, addressed critical tax and compliance issues. Key decisions included significant reductions in late fees for past GSTR-3B filings and interest rate relief for small taxpayers. The Council also extended deadlines for revoking GST registration cancellations and discussed funding mechanisms for state compensation. Discussions on inverted tax structures and rate rationalization for certain goods were postponed to future meetings.
The 40th Goods and Services Tax (GST) Council convened on Friday, June 12, 2020, through video conferencing. Chaired by Union Finance Minister Nirmala Sitharaman, this meeting, the first since the COVID-19 pandemic began in India, delivered significant announcements regarding GST return late fee waivers and extended reductions in interest rates due to the crisis. Discussions on crucial topics such as GST compensation for states, the inverted tax structure, and potential rate rationalization were deferred to a subsequent council meeting. A dedicated session was planned for July 2020 to specifically address state GST compensation and its funding mechanisms.
Subsequent GST Council Meetings
Following the 40th meeting, several other GST Council sessions addressed various tax and compliance matters:
- The 47th GST Council meeting in June 2022 focused on rate revisions for revenue growth, inverted tax structure corrections, and reduced GST exemptions. It also provided compliance relief for e-commerce suppliers and composition taxpayers.
- In December 2021, the 46th GST Council meeting deferred the proposed GST rate increase to 12% for the textile sector.
- The 45th GST Council meeting, held in September 2021, covered topics such as extending tax concessions for COVID-19 essential goods, state GST compensation, and addressing inverted tax structures.
- During the 43rd GST Council meeting in May 2021, the council approved reintroducing the GST amnesty scheme, streamlined late fees for all taxpayers, particularly smaller ones, and exempted IGST on imported COVID-19 treatment equipment and relief supplies until August 31, 2021.
Key Decisions from the 40th GST Council Meeting
Reduced or Waived Late Fees for Earlier Periods
For GST late fees pertaining to the period from July 1, 2017, to January 31, 2020, the Council announced the following:
- Taxpayers with no outstanding tax liability will incur no late fees.
- For taxpayers filing returns between July 1, 2020, and September 30, 2020, the maximum late fee is capped at Rs 500 per return.
Relief for MSME Filers: Interest and Late Fee Waivers for February-July 2020
Small taxpayers with an annual aggregate turnover of up to Rs 5 crore received significant relief. For delayed GST returns in February, March, and April 2020, filed after July 6, 2020 (according to staggered deadlines), the interest rate was lowered from 18% to 9% per annum, provided returns were filed by September 30, 2020. No interest was charged if taxes for these months were paid by July 6, 2020, or the relevant date as applicable based on turnover. Furthermore, late fees and interest for May, June, and July 2020 were waived for returns submitted by September 30, 2020, with staggered dates to be announced.
Extended Deadline for Revoking GST Registration Cancellations
The deadline for requesting the revocation of cancelled GST registrations was extended until September 30, 2020. This applied to all registrations cancelled up to June 12, 2020. Previously, the GST Act stipulated a thirty-day window from the cancellation order date for such revocations.
Deliberations on GST Compensation for States and UTs
The GST Council explored various borrowing options to finance compensation for states and Union Territories, given that GST collections had fallen to 45% of typical levels over the preceding two months. This critical issue was slated for a special, single-agenda council meeting in July 2020.
Addressing the Inverted Tax Structure
The Finance Minister highlighted the problem of excessive Input Tax Credit (ITC) refunds resulting from an inverted tax structure. While a comprehensive discussion focused on the textile industry, other sectors like footwear and fertilizers were not addressed. Despite reaching a consensus on the issue, a final decision was postponed to a future meeting.
Postponement of Rate Rationalization for Certain Goods
The Council, including the Finance Minister, reviewed requests for rate reductions on specific items, such as those related to brick kilns and pan masala. The Finance Minister confirmed that these matters would be addressed in the subsequent regular GST Council meeting.
Updates and Developments from the 40th GST Council Meeting
The meeting commenced around 11:00 AM, with Finance Minister Nirmala Sitharaman chairing the session. Early discussions focused on the revenue situation, with reports indicating a significant shortfall in GST collections, rising from 12.3% in FY 2018-19 to 22.9% in FY 2019-20.
By 2:30 PM, sources reported several key approvals:
- A gradual reduction in late fees for GSTR-3B filings covering July 2017 to January 2020, applicable if taxes and returns were submitted between July 1, 2020, and September 30, 2020.
- This late fee structure included two phases: nil fees for taxpayers with no tax liability, and a maximum of Rs 500 per return per month for those with tax liability, replacing the previous Rs 10,000 per month.
- Initial deliberations also covered compliance relief for small taxpayers with an annual turnover under Rs 5 crore.
The meeting concluded at 3:20 PM, followed by a press briefing from the Finance Minister.
Anticipations Prior to the 40th GST Council Meeting
Expected Waiver of Late Fees for Past GSTR-3B Filings
Prior to the meeting, the GST Council had indicated it would reconsider a long-standing request for waiving late fees on delayed GSTR-3B returns from August 2017 to January 2020. Although numerous trade bodies had appealed for this waiver, the government was initially hesitant, concerned it might disincentivize timely filings and be unfair to compliant taxpayers. This issue was scheduled for extensive debate during the 40th meeting.
Anticipated Extensions for Compliance Deadlines
With businesses gradually resuming operations, a need for extended deadlines for GST payments or the introduction of installment payment options was anticipated, especially for small enterprises struggling with liquidity. Businesses were focusing on sales recovery and allocating resources to discounts, marketing, and online transitions.
Expected Discussion on GST Revenue Collection and Distribution
The meeting was expected to delve into the impact of the pandemic on both central and state revenue. Unofficial estimates suggested a drastic fall in GST collections during the lockdown months of March and April, reaching only Rs 35,000 to Rs 40,000 crore monthly, a 60-70% decline from previous levels. Discussions were planned to address this revenue shortfall and explore options like market borrowing to fulfill state compensation requirements. There was no expectation of increasing GST rates on non-essential items or imposing a COVID-19 calamity cess. The last GST Council meeting was the 39th GST Council meeting held on March 14, 2020.