Summary of Key Decisions from the 37th GST Council Meeting

The 37th GST Council meeting, chaired by Union Finance Minister Smt. Nirmala Sitharaman, took place on September 20th in Goa. This meeting resulted in several key decisions and announcements.

Past GST Council meetings also shaped tax policies:

• The 47th GST Council meeting on June 28th and 29th, 2022, in Chandigarh, included recommendations for rate revisions to boost revenue and correct inversions, along with pruning the GST exemption list. Compliance relief was extended to e-commerce suppliers and taxpayers under the composition scheme.
• On December 31st, 2021, the 46th GST Council meeting in New Delhi, led by Union FM Nirmala Sitharaman, decided to postpone the GST rate increase to 12% for textile products.
• The 45th GST Council meeting on September 17th, 2021, addressed issues such as extending tax concessions for COVID-19 essentials, discussing GST compensation for states, and correcting inverted tax structures.
• The 43rd GST Council meeting on May 28th, 2021, approved reintroducing the GST amnesty scheme, rationalized late fees for all taxpayers (especially small ones), and exempted IGST on imported COVID-treating equipment and relief materials until August 31st, 2021.

Key Outcomes from the 37th GST Council Session

The meeting concluded with a range of decisions, including simplified annual return filings, revised rates, postponement of new GST returns, adjustments to the composition scheme, fresh GST exemptions, and various clarifications. These are detailed below:

• GSTR-9A Waiver for Composition Taxpayers (FY 2017-18 & 2018-19)
• Optional GSTR-9 Filing for Small Taxpayers (FY 2017-18 & 2018-19)

Taxpayers with an annual turnover up to Rs 2 crore in either FY 2017-18 or FY 2018-19 may opt out of filing GSTR-9, effective from a date to be announced by the CBIC. The GST Council also committed to reviewing the simplification of GSTR-9, GSTR-9A, and GSTR-9C forms and their filing processes. However, these taxpayers must still file annual returns for FY 2019-2020 and subsequent years. Larger taxpayers are required to complete their GSTR-9 and GSTR-9C annual return filings by November 30, 2019.

• New GST Return System Implementation Postponed to April 2020

The introduction of the new GST return system is now scheduled for April 2020. This deferral is seen positively, as it helps avoid potential transitional problems that could arise from an mid-year implementation. Taxpayers can now start the new system effectively with a new financial year. This postponement applies universally to all taxpayers and all forms associated with the new GST returns framework.

• Input Tax Credit (ITC) Claim Limitations in GSTR-3B

To encourage taxpayers to submit their outward supply statements promptly, the GST Council advised imposing restrictions on Input Tax Credit (ITC) claims. Recipients will face limitations on claiming ITC if their suppliers have not provided details of their outward supplies.

• Withdrawal of Circular on Post-Sale Discounts

The CBIC's Central Tax Circular number 105, issued on June 28, 2019, offered clarifications regarding post-sale discounts for promotional activities, secondary discounts, and ITC reversal on such discounts. It also clarified whether post-sale discounts should be included in the value of supply and if ITC reversal is necessary when issuing credit notes in specific situations. The GST Council suggested revoking Circular number 105 with retrospective effect from its initial issue date (ab-initio). Exemptions were also extended to supplies of goods or services for FIFA-specified individuals participating in the Under-17 Women’s Football World Cup in India.

• New GST Exemptions Announced

The council announced several new GST exemptions:

• Supplies to the Food and Agriculture Organisation (FAO) for specific projects within India.

• Imports of certain defense items not manufactured domestically, valid until 2024.

• Import of silver or platinum by approved agencies (like Diamond India Ltd) and their subsequent supply by these agencies to exporters for jewelry exports.

• Storage and warehousing services for various agricultural products, including cereals, pulses, fruits, nuts, vegetables, spices, copra, sugarcane, jaggery, raw vegetable fibers (such as cotton, flax, jute), indigo, unmanufactured tobacco, betel leaves, tendu leaves, rice, coffee, and tea.

• Life insurance services provided by the Central Armed Paramilitary Forces (under the Ministry of Home Affairs) Group Insurance Funds to their members.

• Services rendered by an intermediary to a supplier or recipient of goods when both parties are located outside India's taxable territory.

• The BANGLA SHASYA BIMA (BSB) crop insurance scheme offered by the West Bengal Government.

• Other Noteworthy Decisions

• The conditional GST exemption for export freight via air or sea was extended for another year, until September 30, 2020.

• Fishmeal taxability: A full exemption was granted from July 1, 2017, to September 30, 2019, except for instances where tax had already been collected.

• Pulleys, wheels, and HSN 8483 items classified as agricultural machinery were taxed at 12% between July 1, 2017, and December 31, 2018.

• An option to pay 18% GST on the transaction value for the disposal of specified goods used in petroleum operations (which initially received a concessional 5% GST rate) was introduced. This is applicable if the Director General Hydrocarbon (DGH) certifies the goods as non-serviceable.

• Modalities were to be defined for granting concessions on spare parts temporarily imported by foreign airlines for aircraft repairs while in transit in India, in line with the Chicago Convention on Civil Aviation.

Overview of Announcements

Revised GST Rates

Here is a summary of the primary rate changes approved by the GST Council, effective from October 1, 2019:

*Hydrocarbon Exploration Licensing Policy

Anticipated Agenda for Future GST Council Meetings

Streamlining GSTR-9 Filing

The original deadline for GSTR-9/9A/9C, initially December 31, 2018, was extended four times, with the final extension to November 30, 2019. Despite these extensions, only 15% of taxpayers had filed their annual returns by the time of the third extension, indicating significant challenges with the process.

Taxpayers and tax professionals encounter difficulties in various areas, including reporting the HSN summary of purchases, distinguishing Input Tax Credit (ITC) between goods and services, breaking down ITC for expenses, and reconciling data with books of accounts.

The compliance rate for GSTR-3B was notably higher than that for GSTR-1. This disparity suggests a preference for a simplified return format, similar to the summary-based GSTR-3B.

Businesses are hoping the government will prioritize simplifying GSTR-9 over merely granting deadline extensions.

The forthcoming Council meeting might consider reducing less critical disclosure requirements or replacing existing returns with a more accessible, summarized version.

It is also expected that the Council may decide to exempt small taxpayers from the annual return compliance for FY 2017-18.

Potential Deferral of New Return Filing System

The new return filing system was slated for implementation in October 2019.

While the government provided prototype returns for taxpayers and professionals to familiarize themselves with the new system, not all features were enabled in these prototypes.

The new system demands more comprehensive reporting compared to the current one.

Taxpayers require ample time to establish suitable bookkeeping and invoice management systems that meet the new disclosure requirements.

Therefore, the Council might choose to defer the new return system's launch to ensure a smoother transition.

The GST network also suggested launching the simplified new GST returns system in January 2020.

The GST Council may also review a proposal for setting different deadlines for small and large taxpayers under the new simplified GST returns.

Focus on GST Rate Reductions for the Automotive Sector

The automotive industry has been advocating for a reduction in the GST rate from the current 28% to 18%.

The Finance Minister acknowledged the challenges facing the auto sector and assured that these concerns would be addressed in the next Council meeting.

During the previous GST Council meeting, rates on electric vehicles were reduced from 12% to 5%.

A definitive decision regarding GST rate cuts for the broader auto industry is anticipated in the upcoming Council session.

Consideration of ITC Treatment within the Healthcare Sector

Hospitals have reported an approximate 8% decrease in their annual profit margins due to the unavailability of Input Tax Credit (ITC) benefits.

Currently, most healthcare services, excluding cosmetic surgeries, implants, and hair transplants, are exempt from GST.

Since ITC cannot be claimed on exempt services, the cost of inward supplies for healthcare providers has increased.

Consequently, these providers are now advocating for a 5% output GST on taxable services, without ITC.

This discussion is likely to progress further in subsequent GST Council meetings.

Review of Current Revenue Position

To enhance revenue collection, the Council is expected to introduce additional measures aimed at reducing tax evasion.

A slight increase in GST revenue collections was observed in July (Rs 1.02 lakh crore) compared to June (Rs 0.99 lakh crore).

Furthermore, July's collections surpassed the average monthly revenue of the previous financial year.

However, the total collections thus far have not been adequate to meet the annual targets.

The Union Budget 2019-20 revised the GST revenue collection targets downwards to Rs 6.63 lakh crore from the initial Rs 7.61 lakh crore mentioned in the Interim Budget 2019-20.

Additional Expected Decisions

Before any GST rate cuts or structural modifications are decided by the GST Council, they must first be approved by the Fitment Panel.

The Council may consider rate adjustments for the following:

1. Five-star hotels
2. Outdoor catering
3. Match sticks, cups, and plates
4. Lotteries
5. Biscuits

For details on the previous GST Council meeting, refer here.