The 53rd GST Council meeting: Paving the way for Union Budget 2024

The 53rd GST Council meeting was one of the most significant socio-economic events of the year. Taking place after almost 8 months and more importantly, after the commencement of the third term for the incumbent government, this Council meeting was significant from a policy and economic standpoint. Though the Council could only meet for a relatively shorter duration, which curtailed their ability to deliberate and decide on all the agenda items, it delivered a substantive outcome with measures to reduce disputes, easing compliance burdens, clarity on interpretational issues, and rationalizing rates for essential goods (like milk cans, paperboard cartons, sprinklers, solar cookers) and services (like railways and hostel accommodation). 

Arguably, this meeting functioned like a mini budget, tackling a variety of complex socio-economic issue that required policy - level intervention. Key reliefs proposed the Council can be understood as under:  

Tax Dispute and Settlement: Targeting the spiralling disputes under the GST law, the Council recommended a plethora of measures to support honest taxpayers and reduce the burden on judicial infrastructure. These include recommendation of monetary limits for filing departmental appeals in line with the National Litigation Policy, claim of input tax credit (ITC) on the resolved amount post final adjudication of tax disputes and proposed waiver of interest & penalty on voluntary tax payments. The Council even recommended the reduction of pre-deposit amounts and relaxation in time limits for filing appeals before the appellate tribunals which will provide a significant relief to taxpayers intending to contest tax demands. The sunset date for anti-profiteering provisions was also announced as 1 April 2025.

Trade and Compliance Facilitation: The Council also made various recommendations to facilitate trade and ease the compliance burden. These include introduction of new return to amend outward supply details, interest waiver on delayed tax payments if sufficient electronic cash ledger balance maintained by taxpayer, regularisation of past demands due to industry practice or interpretational issues, acceptance of Chartered Accountant / Cost Work Accountant certificates or undertakings from recipients to evidence the reversal of ITC for post-sale discounts and consequent output liability reduction for genuine suppliers etc.

Clearer waters for Insurance Industry: Addressing the long-standing demand of the insurance industry which was struggling between compliance under the Insurance framework and the unique treatment under the GST laws, the Council provided clarity on a host of issues which were being disputed by the department basis a differing interpretation. Key measures include clarification on availability of ITC on investment portion of endowment / unit linked plan life insurance policies, non-taxability of wreckage / salvage vehicles in case where the ownership remains with the insured and the value thereof is deducted by the insurance companies from the settlement claims. 

Harmonization of cross-border related party transactions: For cross-border transactions amongst related parties, the council provided significant relief by clarifying issues which were being aggressively disputed by certain GST departments on account of a differing interpretation. These include clarification for transactions with full ITC availability, the invoice value from the overseas entity will be considered the open market value and in non-invoiced cases it will be deemed as "Nil" value transactions. For transactions involving transfer of shares/securities to employees of an Indian subsidiary, by a foreign holding company will not be subject to GST, if reimbursed on a cost-to-cost basis by the Indian counterpart, and GST will be leviable only on additional fee, if any, charged by the holding company. Similarly, loans or advances between related cross-border parties will not be subject to GST, unless no processing/ service/ administrative fees are charged beyond interest or discount on such loans.

Rate Rationalisation: Several exemptions and rate reductions were announced for goods such as defense imports, technical documentation, research equipment, daily use items like milk cans and solar cookers, supplies to SEZs, and services such as hostel accommodation, railway services and RERA regulatory fee. 
Clarity on substantial issues: Much–needed clarity was issued on a number of issues which germinated due to innovative interpretations by field formations. A few critical clarifications include availability of ITC on ducts and manholes used in optical fibre cable networks, place of supply for custodial services provided by banks to Foreign Portfolio Investors (FPIs) to be location of FPI, payment of GST connected with instalments under government arrangement for spectrum or natural resource allotments, no requirement of ITC reversal for replacement of goods under warranty etc.

The above measures demonstrate the government's commitment to tackling industry and consumer woes through informed policy decisions. However, effective execution by field-level GST authorities remains paramount for their success.

Looking Ahead: A Budget Shaped by GST Decisions

The 53rd GST Council meeting has undoubtedly set the stage for the Union Budget 2024. The decisions taken, along with the unresolved issues, will significantly influence the government's fiscal roadmap. We can expect the budget to address tax rate rationalization, exemptions for essential services, and measures to improve compliance and ease of doing business. Additionally, the budget might propose solutions for industries with inverted duty structures and potentially introduce a framework for taxing online gaming and luxury activities.
In conclusion, this meeting has served as a stepping stone towards a more streamlined and efficient tax regime. The decisions reached and the issues left unresolved will significantly shape the upcoming Union Budget 2024, impacting businesses, consumers, and the overall economic landscape of India.

The authors are with Khaitan & Co. Views expressed are personal.