The Goods and Services Tax (GST) Council on Wednesday removed a host of tax exemptions and raised rates for a larger number of mass-consumption items to remove anomalies and inversion. The decision will take effect from July 18.
A proposal to bring parity between online and offline traders for intra-state trade in GST registration requirement will be effective from January 1, 2023. The Rs 40-lakh annual turnover threshold for goods and Rs 20 lakh for services, which now apply to offline traders, will be applicable for e-tailers too — a major relief for the MSME players in e-commerce operators such as Amazon and Flipkart. If the turnover is below the threshold, 1% tax won’t be collected from them at source (TCS) and they won’t be required to file returns.
After two days of deliberations in the GST Council meeting here, it was approved to impose a 12% tax on hotel rooms costing below Rs 1,000 per day and a 5% levy without input tax credit on hospital rooms with rent above Rs 5,000. To check the misuse of GST provisions, a host of ‘unbranded’ prepackaged and labelled food items will now attract 5% tax. These include curd, lassi, butter milk, paneer, honey, makhana, wheat, rice, puffed rice, etc.
The Council approved the reports of three ministerial panels (GoMs) on rate rationalisation, system reforms and e-way bills on intra-state gold movement, finance minister Nirmala Sitharaman said after the meeting.
The Council also approved that the service provided by an Indian tour operator to a foreign resident for a tour partially in India and partially outside is to be subject to tax proportionate to the tour conducted in India for such foreign tourist, subject to conditions that this concession does not exceed half of tour duration.
The Council has also decided to withdraw exemptions on cheque book and maps, which will attract 18% and 12%, respectively.
Similarly, goods related to petroleum/coal bed methane will attract 12% tax instead of 5% and electronic waste to attract 18% instead of 5%. Services offered by financial regulators, including the RBI, Sebi and IRDA, will mostly attract 18% tax from nil now.
Similarly, the tax rate has been raised from 12% to 18% on aseptic packaging paper, including Tetra Paks.
To correct the inverted duty structure, GST rate will be increased to 18% from 12% on a number of items, including printing, writing or drawing ink, knives with cutting blades, blades, pencil sharpeners, spoons, forks, skimmers, cake-servers, power-driven pumps, deep tube-well turbine pumps, bicycle pumps, machines for cleaning, sorting or grading eggs and fruit and milking machines and dairy machinery, LED lamps, LED lights, LED driver and composite works contract supplied to government, local authorities.
The GST rate will be raised to 18% from 5% on air-based atta chakki, machines for cleaning, sorting or grading, seed, grain or dried leguminous vegetables; machinery used in milling industry or for the working of cereals or dried leguminous vegetables other than farm type machinery; wet grinder consisting of stone as grinder.
The GST rate will also be raised to 12% from 5% on solar water heater and system, Prepared/finished leather/chamois leather/composition leathers, composite works contract supplied to government, local authorities involving earth work, processing of hides, skins and leather, manufacture of leather goods or footwear, Manufacture of clay bricks.
The Council also gave its nod to a clutch of proposals made by a GoM to improve compliance further, including inclusion of electricity bill data during registration by new taxpayers, real-time validation of all bank accounts against a particular PAN, risk assessment of new applicants using machine learning and mandatory physical verifications, and site verification with geo-coding for getting correct address filed by taxpayers.
“Certain goods and services such as recreational services, budget accommodation are likely to become expensive in view of the increase in GST rates. Reforms on IT infra for GSTN and GST compliances is a welcome move,” Rajat Bose, who heads the indirect tax practice at Shardul Amarchand Mangaldas & Co, said.
“The withdrawal of certain exemptions and multiple rate changes announced today are part of the overall rate rationalisation exercise as the GST architecture, as originally envisioned, had few rates and very few exemptions. It seems that over a period of time, GST is now moving in that direction,” MS Mani, partner and leader – indirect tax, Deloitte India, said.