Next GST Council meeting may eliminate 12% tax slab and shift items to other slabs 

As the law stands today, the place of supply of intermediary services is the location of supplier which imposes an additional burden of 18% on domestic taxpayers, even though such services result in inflow of foreign exchange. The upcoming council meeting is all set to address the landmark proposal to omit Section 13(8) of IGST Act which will shift the place of supply to recipient’s base, thus granting domestic taxpayers, the status of zero-rated suppliers. This will not only resolve pending matters worth thousands of crores but will also bring Indian taxation in harmony with global standards.

Rate rationalization - Finally on the table?

The discussions on rate- rationalization, though on cards of GST Council were again deferred in 55th GST Council meeting due to delay in submission of reports by Group of Ministers (GoM) along with the fitment committee. If recent reports are anything to go by, a “near consensus” to eliminate 12% GST slab rate, which adds a negligible GST revenue contribution and shifting of items under 12% slab either to 5% or 18% slabs has been arrived at. With rising GST collections offering stability and security, 56th GST council meeting is poised to provide clarity on the final recommendation.

Certain sectors such as footwear, fertilizers, textiles, EVs are grappling with the issue of blockage of working capital owing to the accumulated input tax credit (ITC) due to structure of inverted duty. It is expected that the concerns will be addressed in the upcoming meeting by way of streamlining the tax structure in a phased manner, as part of rate rationalization.

Compensation Cess likely to be removed

With the GST compensation cess ending in March 2026, a GoM, headed by the Minister of State in the Finance Ministry, Pankaj Chaudhry, was established to study the fate of loss of revenue and suggest whether the compensation cess should be extended or replaced by a new levy. The GoM is expected to submit its report by 30th June 2025. It is being suggested that the compensation cess may be replaced with health and clean energy cess after March 2026, which will require a constitutional amendment. The media reports also suggest merging the cess with GST rates on items that currently attract cess has also been supported by the GoM.

Food and Beverage Sector- Longing for relief

The food sector has been flooded with the tax demands on delivery services, with authorities demanding GST at 18%, as against 5% being discharged by the companies. While the matter was expected to be addressed at 55th GST Council Meeting, much to the disappointment of industry, the same was left to fitment committee to decide. Since the Council Meeting is being held after a long span of 6 months, the industry is placing its hope on this meeting and looking forward to relief from their ongoing investigations/litigation.

Ride Hailing Industries appeal amid conflicting GST Rulings

The divergence in view of GST Advance Rulings have often put the taxpayers in a tight spot, more so because the rulings are binding only on the appellant. The conflicting advance rulings passed by Karnataka Authority on the GST applicability under Section 9(5) of CGST Act on e-commerce operators adopting SaaS (Software as a Service) model has sparked major concerns. In SaaS model, the operators operate on a subscription model rather than commission model. The e-commerce operators contend that though such platforms connect the driver and customer, the transportation services are not provided through the platform and thus, does not trigger 5% GST liability under Section 9(5) of CGST Act.

While the Rajasthan AAR accepted the contention of ONDC-affiliated Namma Yatri and Multi-Verse Technologies Private Limited, ruling in their favour and exempting them from applicability of GST under Section 9(5), other operators such as Uber, rapido were asked to comply with the said section and discharge 5% GST, disrupting the market competition.

As the reports suggest, the Karnataka High court has asked CBIC to provided clarity on the subject and thus, the ride‑hailing industry is banking on this meeting to secure much‑needed clarity to keep up with the competition.

Insurance Sector- Benefits Guaranteed?

The Insurance Sector is keenly looking forward to the 56th GST Council Meeting since the matter was put on hold for re-consideration and deliberation by GoM in the last meeting. The outcomes that are speculated regarding the taxability of insurance sector revolves around GoM likely backing a full GST exemption on term life insurance along with health insurance for senior citizens to make it affordable and accessible. An exemption on the GST paid on premiums for health insurance with a coverage of up to Rs 5 lakhs for others or a reduction of tax rate from 18%-12% has also been put up under consideration. However, no change in the GST rate of 18% on health insurance with coverage of more than Rs. 5 lakhs has been put on the table.

A blanket exemption or reduction in tax rates to 5% without ITC is being opposed by Insurance sector since it would lead to loss of input tax credit (‘ITC’) to the companies, which would eventually drive up the costs for consumers. On the other hand, reducing the rate to 5% with ITC is being objected to by Government due to loss of revenue on ITC; blanket exemption has been regarded as an ideal solution by the Government.

It is clear that if the exemption is granted, leading to the loss of ITC to Insurance Sector, the same will be eventually passed on to the consumer which may not serve the intended purpose of reduction in rates. Thus, the upcoming council meeting will not only shape the landscape of the insurance sector but is equally crucial for the consumers. With Insurance Regulatory and Development Authority (IRDAI) submitting its final comments before the Council in last meeting, it is expected that this issue will be addressed without any further delay.

With multiple key topics open for debate, it will have to be seen what all matters will be brought up for discussions in 56th GST Council Meeting and what all matters will be deferred for future deliberations. With high hopes, nation waits for best of the outcome from the upcoming meeting.

(Shivam Mehta is Executive Partner and Tanya Garg is Principal Associate at Lakshmikumaran & Sridharan attorneys)

Views are personal and do not represent the stand of this publication.