GST Council meeting on Sep 3-4: Exemption on cards for cancer drugs

The Goods and Services Tax (GST) Council, convening for two days starting Wednesday to take up the much-awaited rationalisation of the multiple-rate indirect tax regime announced by Prime Minister Narendra Modi on Independence Day, is likely to consider GST exemptions for around 36 cancer-fighting drugs, a new price-based levy for ciga­rettes, and fresh price thresholds for foot­­wear and apparel taxes.

 

The Council, that includes representatives from all states, is slated to discuss the Centre’s proposal to do away with the 12 per cent and 28 per cent GST rates, retain the extant rates of 5 per cent and 18 per cent, and introduce a new 40 per cent special rate for sin and luxury goods.

 

If states concur with this formulation, over 250 items that currently face a 12 per cent levy are likely to be reclassified, with around 223 of them being moved to the 5 per cent bracket, and the rest to the 18 per cent bracket. Items likely to move from the 12 per cent slab to 5 per cent include marble and granite blocks in uncut form, and renewable energy equipment such as solar power generators, solar cells, wind energy items and solar modules. 

 

Similarly, nearly 30 items from the 28 per cent tax bracket, may be shifted to an 18 per cent levy, with the higher 40 per cent tax being imposed on about 10 items. Some of the items in the 28 per cent bracket that are likely to benefit from a rate reduction, are auto parts and tyres, air-conditioners, televisions, motorcycles, lead-acid batteries, and even rowing boats.

 

Garments and apparel as well as footwear priced above ₹2,500 are likely to attract 18 per cent GST, while those below this threshold are expected to be taxed at 5 per cent, sources said. Currently, all kinds of footwear attract 18% GST, barring casual footwear which is taxed at 12 per cent if priced below Rs. 1,000. Similarly, apparel with a market price over Rs. 1000 is taxed at 12 per cent, with clothes with a lower price face 5% GST.

 

In addition, hotels with room tariffs below ₹7,500 per room night for the entire previous year may be taxed at 5 per cent instead of 12 per cent. Presently, the levy for such hotel rooms is pegged at 12 per cent.  

 

According to sources, the Council may also revisit cigarette taxation, with a proposal to shift to an MRP-based levy that is linked to printed prices, benefiting smaller, unorganised players with lower MRPs, while companies with higher-priced products, may face a bigger hit.

 

Currently, cigarettes are subject to 28 per cent GST, along with an excise duty which varies based on the length of the stick, a national calamity contingent duty and GST compensation cess.  Industry has sought a more nuanced system, with tax linked to criteria such as stick length and whether the cigarette is filtered or non-filtered.

 

The major rate rationalisation exercise, also includes a plan to fully exempt 36 cancer drugs from GST, sources conveyed. In September 2024, the Council had lowered the GST levy on a few cancer drugs to 5 per cent from 12 per cent.

 

Separately, the Council is expected to revise the rate for Goods Transport Agents - from 12 per cent with Input Tax Credit (ITC) to 18 per cent with ITC. However, an existing alternate regime under which they can pay 5 per cent GST without ITC will continue. “This dual option means the change is unlikely to significantly impact industry, as businesses can still opt for the concessional scheme depending on their credit position,” said Vivek Jalan, partner at Tax Connect Advisory Services.

 

Post-sale discounts

 

The resolution of an oft-disputed tax treatment of post-sale discounts is also on the agenda of the Council, according to sources in the know. Presently, only certain types of discounts qualify for tax adjustment through credit notes.

 

Many post-sale discounts, which refers to the offer of a concession by sellers to buyers during or after a transaction, or based on targets such as turnover, or year-end discount schemes, don’t qualify for issuance of GST credit notes, and “commercial credit notes” are issued for these.

 

Tax officers have been treating commercial credit notes issued for schemes like turnover or year-end discounts as a service provided by recipients of the credit notes, triggering litigation.

 

“If a discount is agreed in advance, it qualifies for a GST credit note under the law and it can reduce the tax amount; but if it is given later, like a turnover rebate or year-end scheme, it only qualifies as a commercial credit note, which is just a book adjustment with no tax impact,” said Jalan.

 

“The dispute arises because some field officers argue that such discounts provided via commercial credit notes are in lieu of services — such as marketing support, sales promotion or achieving turnover targets — rendered by the distributor to the supplier, even though it is a fact that no actual service is provided,” Jalan added.

 

Although the Central Board of Indirect Taxes and Customs (CBIC) clarified this issue through a Circular 105 issued in 2019, the same was subsequently withdrawn. Since then, litigation on this aspect has been occurring across sectors, Jalan noted.

 

“The reported rate rationalisation, particularly to exempt cancer drugs and reduce rates on 223 items from 12 per cent to 5 per cent, could provide significant relief to people, if approved. Businesses would need adequate transition time for inventory management and system updates,” said CA Nitin Bansal, State President, CA Cell, BJP Haryana.

 

Terming the proposed ₹2,500 threshold for higher GST levies on textiles and footwear as balanced, Bansal said the rate changes would need an agreement between the Centre and the states, and the timing just ahead of the festive season could provide immediate relief if implemented swiftly.