GST Council Clears Changes In Tax Rates Of Some Goods And Services On First Day Of Two-day Meeting

On the first day of the two-day Goods and Services Tax (GST) Council meeting on Tuesday, the Council cleared changes in tax rates of certain goods and services and also allowed states to issue e-way bills for intra-state movement of gold and precious stones.

The Council approved the withdrawal of tax exemption for labelled food items and pre-packaged food such as curd/lassi/buttermilk, wheat flour, puffed rice, paneer, and hotels with rent below Rs 1,000 a day.

It also corrected inverted duty structure for items like edible oils, coal, LED lamps, printing ink, knives and solar water heaters. The Council has also approved compliance measures for high-risk taxpayers including mandatory biometric authentication, inclusion of electricity bill data, real-time validation of all bank accounts against a particular PAN and geo-tagging, sources said. The Council accepted the interim report by group of state finance Ministers, headed by Karnataka Chief Minister Basavaraj S Bommai, on rate rationalisation, which included correction of inverted duty structure and removal of tax exemption on some items in order to simplify the rate structure.

The report recommended increasing rate on manufacturing services of leather goods, clay bricks from 5 per cent to 12 per cent, increasing GST on LED lamps, ink, knives, blades, power driven pumps, spoons, forks, dairy machinery from 12 per cent to 18 per cent and including pre-packaged food items including puffed rice, wheat flour, curd, lassi, at par with branded food items with a tax rate of 5 per cent.

The Council, chaired by Finance Minister Nirmala Sitharaman, also cleared several compliance procedures for GST registered businesses as well as report prepared by a group of ministers (GoM) report on high-risk tax payers to check evasion.

The discussion on crucial issues of GST compensation to states beyond June 2022 and 28 per cent tax on casinos, online gaming and horse racing, will take place on the second day of the meeting.

Opposition ruled States have been demanding for either extension of GST compensation regime or increasing states’ share in GST revenue from the current 50 per cent.

Opposition-ruled states are expected to take up the issue of extension of the compensation regime to bridge revenue shortfall beyond June 2022. “We are looking to ask for an extension for the compensation mechanism for five years beyond June. Discussion will happen on Wednesday,” a state finance minister said.

The GoM had suggested withdrawal of GST exemption on a host of services including on hotel accommodation of less than Rs 1,000 per day and replacing it with a 12 per cent tax.

It also recommended a levy of 5 per cent GST on room rent (excluding ICU) charged for hospitalised patients where the hospital room charges are above Rs 5,000 per day.

It wanted all post office services other than postcards and inland letters, book post and envelopes weighing less than 10 gm, to be taxed.

Cheques, loose or in book, should be taxed at 18 per cent, the GoM recommended.

The GoM favoured withdrawal of exemption given to renting of residential dwellings by businesses for residential use.

With regard to e-way bill on intra-state movement of gold, gold jewellery and precious stones to check evasion, the Council recommended that states can decide on the threshold above which the electronic bill is to be made mandatory.

A panel of state ministers had recommended the threshold to be Rs 2 lakh and above.

A report of a panel of state finance ministers had suggested verification after registration for high-risk taxpayers under GST and using verification of electricity bill details and bank accounts for identifying such taxpayers.