GST Council Decisions: What Businesses And Consumers Need To Know

The 54th meeting of the Goods and Services Tax (GST) Council has brought several key issues to the forefront, addressing concerns on online payments, helicopter services for religious purposes, and the taxation of research and development activities in educational institutions. India’s GST collections slightly declined to Rs 1.75 lakh crore in August 2024 from Rs 1.82 lakh crore the previous month.

While the overall GST growth remained steady at around 10 per cent, reflecting resilience in domestic revenue collection, the Council took up several proposals that could impact various sectors, including digital payments, insurance, and education. These proposals were referred to the fitment committee for further review, signalling the government’s cautious approach to tax reforms.

“The proposed changes could create a more straightforward and predictable GST framework, enhancing compliance and reducing complexities for businesses. Simplifying the rate structure could lower administrative burdens and support industries like insurance by potentially adjusting high tax rates that impact consumer costs,” noted Sandeep Agrawal, Director and Founder, Teamlease Regtech.

Agrawal also pointed out that the government's approach in sectors like online gaming, where the 28 per cent tax remains, reflects a careful balance between revenue generation and industry growth.

“There was a long list of topics expected to be deliberated, quite a diverse set of agenda items. However, some recommendations were made in the 54th GST Council Meeting. The Group of Ministers (‘GoM’) presented their reports on the rate rationalisation and real estate sector. The work on both these topics will now commence, and there were no deliberations today in the Council,” stated Ranjeet Mahtani, Partner at Dhruva Advisors, further elaborated on the Council’s agenda.

Mahtani also noted that a key issue the GoM is tasked with is deciding on the fate of the compensation cess after March 2026, which will impact commodities currently levied with GST. Additionally, the taxation regime for online gaming, casinos, and racecourses was reviewed, with the decision to maintain the status quo. However, the levy of GST on life and health insurance premiums, which has a consensus for rate reduction, remains a deferred topic with final decisions expected by the end of October 2024.

Domestic Revenue And GST Trends
In the first five months of the financial year, India’s GST collections rose by 10.1 per cent, reaching Rs 9.14 lakh crore. Domestic revenue saw an increase of 9.2 per cent to Rs 1.25 lakh crore, while revenue from imports grew even faster, at 12.1 per cent, totalling Rs 49,976 crore. This growth highlights the sustained recovery in the economy, although the pace of increase in net domestic revenues has been slower, growing by 4.9 per cent after adjusting for refunds.

Notably, Integrated Goods and Services Tax (IGST) revenues saw a stronger rise of 11.2 per cent, with total net GST revenue standing at Rs 1.5 lakh crore, reflecting a 6.5 per cent increase compared to the same period last year. Refunds also played a significant role, with Rs 24,460 crore being issued in refunds, 58 per cent of which went towards domestic refunds and the remaining allocated to exporters.

In 2023-24, the Centre and states collected Rs 8,262.94 crore through GST on health insurance premiums and Rs 1,484.36 crore from reinsurance premiums, highlighting the role of the insurance sector in India’s tax framework.

Key Proposals Sent To Fitment Committee
One of the most discussed topics in the GST Council’s 54th meeting was the proposal to tax small digital transactions under Rs 2,000 at 18 per cent GST. This proposed taxation on online payments below Rs 2,000 could affect consumers and payment aggregators alike, potentially making small online transactions more expensive.

Uttarakhand Finance Minister Premchand Aggarwal clarified that no immediate decision was made regarding this proposal, as the issue has been referred to the fitment committee for further deliberation. The committee, comprising Centre and state tax officials, will now study the possible implications and present a detailed report to the GST Council.

On this matter, Mahtani added, “Even while the Tax Department authorities have served show cause notices to payment aggregators, demanding GST on transactions below INR 2,000 routed through payment aggregators, the matter was not deliberated upon, leaving the matter in the hand of the adjudicators.”

The fitment committee will also review other significant matters, such as the taxation of research and development activities in educational institutions. Notices issued by the Directorate General of GST Intelligence (DGGI) to seven universities, including IIT Delhi and Punjab University, over research grants worth Rs 220 crore, have drawn attention to this issue.

“Despite having notices, research institutes and universities will be relieved to know of the recommendation to exempt them from GST on grants. Such exemption is for the qualifying establishments, and past period demands will be regularised on an as-is-where-is basis,” Mahtani noted.

Additionally, the committee is tasked with clarifying the taxation related to oil and gas exploration under farm-in and farm-out contracts. This issue has been postponed for a more thorough examination in the next Council meeting.

GST On Helicopter Services Reduced
In a decision providing relief to pilgrims and tourists, the GST Council reduced the tax on helicopter services for religious purposes from 18 per cent to 5 per cent. This move is expected to ease the financial burden on devotees using helicopter services for pilgrimages to religious sites across India.

This reduction in GST will make helicopter services more affordable for tourists visiting religious destinations, offering a boost to religious tourism, particularly in regions where accessibility to pilgrimage sites is challenging.

Insurance Premiums And Market Sentiment
The insurance sector has been another focus area, with discussions around the GST on health and reinsurance premiums. As of August 2024, the government collected Rs 8,262.94 crore through GST on health insurance premiums. However, no concrete decision has yet been made regarding changes to taxation in the insurance sector.

The stock market reacted to the uncertainty surrounding insurance premiums, with shares of Star Health, ICICI Lombard General Insurance, and Go Digit General Insurance trading lower following the GST Council's meeting. The impending decision on health insurance premiums is expected to impact these companies, adding to the market’s cautious sentiment.

Research And Development Activities Under Scrutiny
The issue of GST on research and development activities in educational institutions, particularly in light of notices sent by DGGI to universities over research grants, will undergo further review by the fitment committee. Institutions such as IIT Delhi and Punjab University, which received notices related to Rs 220 crore in research grants, are awaiting clarity on how these grants will be treated under GST.

The decision on whether these grants are subject to GST is crucial for educational institutions that rely on research funding. The fitment committee’s findings could have long-term implications for the academic sector.