GST Council Meeting Highlights: Import Of Covid-Related Items Exempted From IGST Till Aug. 31

The Goods and Services Tax Council met today for its first meeting in nearly seven months and decided on a slew of matters.

The biggest decision was on reducing the compliance burden on taxpayers, Finance Minister Nirmala Sitharaman, who chaired the 43rd meeting of the Council, said. To provide relief to small taxpayers, an amnesty scheme has been recommended for reducing late fee, she said. This is likely to benefit around 89% of those who pay GST.

The issue about extending the GST Compensation period, which was widely expected to dominate the discussions, will be taken up at another meeting, Sitharaman said.

Key Highlights

• Import of Covid-related relief items exempt from IGST till Aug. 31.
• AmphotericinB, used for treating Mucormycosis, will also be exempt from IGST.
• Group of ministers to review exemption requests on further Covid-related items like vaccines and ventilators. GoM to be constituted tomorrow.
• Annual return filings will continue to be optional for small taxpayers for FY21.
• Rate decisions on items ranging from MRO units of ships to shipping to annuity payments received as deferred payment for construction of road. (Read more here)
• Compensation cess payable to states this year is Rs 2.7 lakh crore of which Rs 1.58 lakh crore will be given to them via back-to-back loans. Same formula as last year to apply. (Read more here)
• Separate meeting to be held to discuss states' demands regarding extension of compensation period beyond FY22. (Read more here)

Read on for more details on the decisions or watch the full press conference live here.

A group of ministers will be formed to review the GST rates on Covid-19 vaccines, ventilators, medical-grade oxygen and certain diagnostic test kits.

The GoM, which will be formed tomorrow, will have to submit its report by June 8. The group will decide on any new rates, exemptions or further reduction on specific items.

The GST Council said it will make appropriate changes to clarify that land owner promoters can utilise credit of GST charged to them by developers with respect of apartments that are subsequently sold by the land promoter and on which GST is paid.

The developer promotor shall be allowed to pay GST relating to such apartments any time before or at the time of issuance of completion certificate, it said.

The council clarified that GST will be payable on annuity payments that are recieved as deferred payment for the consutrction of roads.

The benefit of the exemption is for such annuities which are paid for the service by way of access to a road or a bridge, it said.

The council also clarified that any milling services of wheat, rice or paddy provided to governments for distribution of flour or rice under the Public Distribution Scheme would be exempt from GST if the value of goods in composite supply does not exceed 25%.

Otherwise, such services would attract GST at the rate of 5% if supplied to any person registered in GST, including a person registered for payment of TDS, it said.

THe Goods and Services Tax council has recommended that rates on the maintenance, repair and operations of ships and vessels be reduced to 5% from the existing 18%.

The point of sale for the B2B supply of these MRO services for ships and vessels would be considered as the location of recipient of service, it said.

Finance Minister said that for calculating the GST compensation cess payment the same formula as last year will be adopted this year too.

The Centre estimates it will have to borrow Rs. 1.58 lakh crore and pass on as back-to-back loans to states, she said.

The Finance Minister said that annual return filing will continue to be optional for FY21 for small taxpayers with turnover less than Rs 2 crore.

Reconciliation statements for 2020-21 have to be furnished by taxpayers with turnover of Rs 5 crore or more, she said.

A law committee will look into issues involving quarterly return filing and quarterly payment, the modalities for which are yet to be worked out.

Finance Minister Nirmala Sitharman said that a separate meeting will be held soon to discuss the issue of extending the GST Compensation period beyond 2022.

Compensation period has been a worry since last year, she said. "We’re in the last of the 5 years of the compensation promised to states. I have assured members of a discussion soon on compensation period."

The Finance Minister said that the biggest decision taken today was about reducing compliance burden on the taxpayers.

To provide relief to small taxpayers, an amnesty scheme has been recommended for reducing late fee, she said. This is likely to benefit around 89% of those who pay GST. Taxpayers can file pending returns and avail benefits of scheme with reduced late fee.

Even late fee has been rationalised, she said. "The maximum amount of late fee has been reduced and will come into effect from future tax periods."

The Finance Minister said that the any import of Covid-related relief items, even if purchased or meant for donating to government or any other relief agency, will be exempted from the Integrated Goods and Services Tax till Aug. 31, 2021.

AmphotericinB, the drug required for treating Mucormycosis fungal infection, has also been included in list of items exempted from IGST.

A group of ministers will be formed to examine need for further reductions on items like vaccines and ventilators and decide on any new rates in exemptions. The group will have to submit its report by June 8.

Punjab Finance Minister Manpreet Badal has said that the Union Finance Minister Nirmala Sitharaman has assured states of a discussion on the compensation period of GST.

• Cess shortfall issue was discussed. Many states argued that shortfall should be transferred in the form of a grant and that complete shortfall should be compensated.
• FM has promised another meeting this quarter to discuss issue of compensation period extension.
• The meeting will discuss how to augment resources too.

Some states are likely to have demanded the central government to guarantee GST revenue to them beyond 2022, when the compensation period comes to an end. The states, governed by parties other than the ruling Bharatiya Janata Party, intend to come together to argue that the period of GST compensation needs to be extended.

The GST Constitutional amendment had assured states of compensation for loss of revenue for five years (2017-2022), as state levies were subsumed under the common national tax. A subsequent law mandated a 14% compounded growth in states’ GST revenue every year till 2022. A cess was imposed on sin goods to fund this revenue assurance.

The finance ministers of West Bengal, Jharkhand, Punjab, Kerala, Rajasthan, Tamil Nadu and Chhattisgarh met on Wednesday and deliberated on issues such as extension of the compensation period among others ahead of the upcoming meeting.

An extension in the compensation period for states would require a constitutional amendment. Currently the revenue assurance in the Indian Constitution doesn’t prescribe the funding route—it makes no mention of how the assured revenue is to be funded, whether by the Consolidated Fund of India or through a cess or any other mechanism.

The Council is also expected to take up the matter of estimated shortfall in compensation cess collected in FY22. The government estimates to pay a GST compensation of Rs 2.7 lakh crore to states for 2021-22, marking a second consecutive year that such a shortfall is arising.

Last year, the central government made up the shortfall by extending loans of Rs 1.1 lakh crore to states. It funded only part of the shortfall. This year, it is looking to borrow about Rs 1.6 lakh crore from the market to compensate states. The government estimates that a compensation of Rs 2.7 lakh crore would be needed this year.