The recent decisions will go a long way in simplifying the indirect tax system
The 47th GST Council concluded in line with industry expectations on several issues and has addressed some of the key concerns regarding the correction of the inverted duty rate structure for several products via an increase of the GST rate.
The Council also rationalised several exemptions in the service sector and has suggested an increase in tax rates on specified goods. Additional clarifications on several teething GST rates and compliance issues are also a welcome step. Given below are the sectoral impact of these decisions:
Automobiles: The GST rate on electric vehicles whether fitted with batteries or not shall be 5 per cent. This will bring certainty to GST rates in the case of electric vehicles where the space is evolving in terms of battery swapping technology.
Agriculture: The rate on various machinery used in agriculture operations is rationalised to correct the inverted duty structure. This is likely to improve working capital for an agriculture machinery manufacturer.
Construction: The rate on works contract service provided to government is rationalised to correct inverted duty structure and bring it at par with construction services provided to other than government.
Defence: GST exemption is provided to specified defence items imported by private entities to make products cheaper for defence forces.
E-commerce: Small traders (turnover lower than ₹40 lakh) have been allowed to make an online sale through e-commerce platforms without the need for mandatory registrations. Also, composition dealers have been allowed to make inter-State sales through e-commerce platforms. This would help is the ease of doing business for MSMEs.
FMCG: GST exemption on pre-packaged commodities (curd, lassi, butter milk etc.) is withdrawn making them costlier for the consumer.
Hospitality: The rate on hotel accommodation up to ₹1,000 per day increased to 12 per cent, making it costlier for the consumer.
Healthcare: GST rate on orthopaedic and other appliances is reduced from 12 per cent to 5 per cent. GST exemption on service by the cord blood bank by way of preservation of stem cells is withdrawn. The service of common bio-waste treatment facilities shall be taxed at 12 per cent with ITC. GST rate for room rent (excluding ICU) above ₹5,000 per day per patient is rationalised. This is likely to make healthcare services costlier for certain category of consumers.
Logistics: GST rate on transportation of goods and passengers by ropeways, renting of goods carriage (where the cost of fuel is included) is reduced. GST exemption is withdrawn on the transport of passengers by air to and from North-East States and Bagdogra in business class, transportation by rail or vessel of railway equipment and material. GST exemptions will continue on services associated with transit cargo both to and from Nepal and Bhutan, and the additional fee collected in the form of higher toll charges for a vehicle not having Fastag. The rate on renting motor vehicles and tour operators providing services to foreign residents for a tour partially in India and outside India is clarified, making the services costlier.
Precious metals: GST rate on cut & polished diamonds is increased from 0.25 per cent to 1.5 per cent making cut and polished diamonds costlier. Special provisions for local movement of precious metals (such as Gold) to be introduced.
Crypto-currency: GST levy on virtual digital assets (i.e., cryptocurrency) was not taken up in this meeting.
Casino: Increase in GST rate on casino, racecourse and online gaming is put on hold. The Council directed the Group of Ministers to present a revised report on this subject.
While the Group of Ministers tabled four reports before the GST Council, the deliberation could happen only on a few reports leading to the above mentioned decisions. The industry would need to await a conclusion on key issues regarding GST rate rationalisation and extension of GST compensation to States.
The writer is Tax Partner, EY India. With inputs from Gaurav Narula, Director Tax, EY India. Views expressed are personal
Published on July 03, 2022