GST Council meeting: All eyes on rate cuts, addressing inverted duty structures
Industry and states flag that without correction of duty inversion, rate cut benefits may not pass through fully
- Sep 1, 2025,
- Updated Sep 1, 2025 2:35 PM IST
With the Goods and Services Tax (GST) Council set to meet later this week, concerns have emerged over duty inversion and input tax credit amidst industry and states who have underlined that these issues have to be addressed fully for the benefit of the rate rationalisation to pass through to consumers.
“It has to be seen how the inverted duty structure is addressed with the rate cuts. For several items, where the rate might be reduced to 5% or exempt, it has to be seen how the input services are treated because most input services are taxed at 18%,” noted sources.
This would lead to an inverted duty structure, where the tax on input services is higher than that on finished products. Besides, input tax credit is not available for the GST slab of 5%. In such a scenario, it would be difficult for manufacturers to pass on the proposed GST rate cuts to the end consumers.
The issue has already been flagged by the insurance sector, where the proposal is to exempt life and health insurance policies for individuals from GST. There are concerns that other sectors where there are duty cuts from pharma and medical devices to FMCG products, could also be similarly impacted.
According to sources, these concerns have been flagged by industry as well as states to the Union Finance Ministry. It is expected that there would be more clarity on these issues when officers of the finance ministry and states meet on September 2 to discuss the proposals for rate rationalisation by the Centre.
The GST Council, which will meet on September 3 and 4, will take up the Centre’s proposals to rationalise rates under GST with two main rates of 5% and 18% along with a higher rate of 40% on sin and luxury goods.
However, the Centre has underlined that the structural reforms under GST 2.0 would also work on correcting the inverted duty structure to align “input and output tax rate so that there is a reduction in the accumulation of input tax credit”.
With the Goods and Services Tax (GST) Council set to meet later this week, concerns have emerged over duty inversion and input tax credit amidst industry and states who have underlined that these issues have to be addressed fully for the benefit of the rate rationalisation to pass through to consumers.
“It has to be seen how the inverted duty structure is addressed with the rate cuts. For several items, where the rate might be reduced to 5% or exempt, it has to be seen how the input services are treated because most input services are taxed at 18%,” noted sources.
This would lead to an inverted duty structure, where the tax on input services is higher than that on finished products. Besides, input tax credit is not available for the GST slab of 5%. In such a scenario, it would be difficult for manufacturers to pass on the proposed GST rate cuts to the end consumers.
The issue has already been flagged by the insurance sector, where the proposal is to exempt life and health insurance policies for individuals from GST. There are concerns that other sectors where there are duty cuts from pharma and medical devices to FMCG products, could also be similarly impacted.
According to sources, these concerns have been flagged by industry as well as states to the Union Finance Ministry. It is expected that there would be more clarity on these issues when officers of the finance ministry and states meet on September 2 to discuss the proposals for rate rationalisation by the Centre.
The GST Council, which will meet on September 3 and 4, will take up the Centre’s proposals to rationalise rates under GST with two main rates of 5% and 18% along with a higher rate of 40% on sin and luxury goods.
However, the Centre has underlined that the structural reforms under GST 2.0 would also work on correcting the inverted duty structure to align “input and output tax rate so that there is a reduction in the accumulation of input tax credit”.