The agenda for the Goods and Services Tax (GST) Council at its subsequent assembly will embody deliberations on minimising the 12% tax slab and likewise finalising the tax remedy on service intermediaries, which may present the sector aid value hundreds of crores, in accordance to knowledgeable sources.
Further, whereas the assembly was initially supposed to be held in June, there was some back-and-forth between members of the Council over the situation of the assembly, main to delays. It will now doubtless be held in July 2025, which might be greater than six months after the final assembly, which was held in December 2024 in Jaisalmer.
According to the principles, the GST Council is supposed to meet as soon as each quarter, or three months.
“One of the main agenda items, as part of the overall simplification and rate rationalisation effort, is what to do with the 12% slab,” an official conscious of the developments advised The Hindu. “One of the internal recommendations was to minimise the slab or maybe even do away with it entirely.”
Doing away with the 12% fee would scale back the variety of tax charges beneath GST to 0%, 5%, 18%, and 28%, not counting the specialised charges of 0.25% on diamonds and three% on gold and silver, or the extra compensation cess on items in the 28% slab.
“It is improbable that the GST Council will completely abolish the 12% tax slab,” Saurabh Agarwal, Tax Partner at EY India, defined. “Instead, they are likely to gradually reduce the number of items in this category by shifting them to the 5% slab. Additionally, some items currently taxed at 18% may be moved to the 12% slab.”
This adjustment would mirror a change in client behaviour, he stated, since rising per capita revenue meant that many merchandise that had been as soon as thought-about discretionary, similar to toothpaste and cleaning soap, have develop into on a regular basis requirements. Currently, toothpaste and cleaning soap are taxed at 18% and shampoo might be taxed as excessive as 28%.
Input tax credit score
However, different tax consultants say that shifting items from the 12% slab to 5% won’t at all times be factor for the producers. At 12%, they’re eligible for enter tax credit score, which can doubtless be revoked if they’re moved to 5%. This means the producers wouldn’t get credit score for the tax they pay on inputs.
The Hindu has learnt that the opposite main merchandise on the agenda of the GST Council could be the taxation of service intermediaries. Currently, service intermediaries are taxed at 18% even after they present companies to firms overseas. This is probably going to be eliminated.
An more and more frequent incidence, particularly in the IT house, is for the Indian arm of a multinational firm to execute an order for the MNC inside India. For instance, suppose Company A buys a service from Firm X, an MNC based mostly in the U.S. Firm X asks its India arm, Firm Y, to fulfil the order in return for cost from Firm X. In such a situation, Firm Y is exporting its companies to Firm X. Yet, beneath the present GST regulation, it’s nonetheless taxed on these companies.
“The current framework continues to tax intermediary services even when rendered to overseas clients, leading to a double whammy,” Manoj Mishra, Partner and Tax Controversy Management Leader at Grant Thornton Bharat, stated. “First, it raises costs for Indian service providers, and second, it results in double taxation since Indian importers pay duty on the full value, including what is paid to the intermediary.
According to Mr. Mishra, the tax exposure from these service intermediaries is around ₹3,500 crore, making the issue a very significant one for the industry.
Given that these services bring in valuable foreign exchange, there is an expectation of treating it as zero-rated supplies,” he stated. “Such treatment would not only help reduce the tax burden and compliance uncertainty but would also be consistent with the approach taken by courts.”
