GST Council exempts gene therapy, banks’ penal charges from tax; clarifies taxation of used vehicles, popcorns

Jaisalmer: India's indirect tax body has decided to exempt expensive cancer treatment gene therapy, penal charges levied by banks on loans, as well as rent paid by small businesses on property leased from individuals from the Goods and Services Tax (GST), finance minister Nirmala Sitharaman told reporters after the GST Council meeting on Saturday.

The Council, at its 55th meeting, also issued clarifications on certain products such as used vehicles and popcorns to avoid interpretation-related disputes. 

It also decided to exempt payment aggregators like Razorpay from GST on transactions up to ₹2,000 by clarifying that these are covered by the definition of the Reserve Bank of India’s definition of ‘acquiring banks’, which settles transactions between consumers and merchants.

The Council meeting demonstrates a clear shift towards a more pragmatic and consultative approach to tax policy, said Saurabh Agarwal, tax partner, EY.

The focus on resolving long-standing disputes, such as the GST treatment of penal charges by banks and non-banking finance companies, signals the government’s intent of minimizing litigation and fostering a more predictable tax environment, said Agarwal.

On popcorns

Sitharaman explained that popcorns are sold in different ways, some are plain or salted while others are with caramelised sugar. The tax system treats ‘namkeen’ or savory and those with added sugar differently. “When caramelised sugar is added, it is no longer a namkeen," the minister explained.

The Council clarified that ready-to-eat popcorn mixed with salt and spices has the essential character of savory and attracts 5% tax if sold without packaging or a label. If it is pre-packaged and labelled, a 12% tax is applicable. 

However, when popcorn is mixed with sugar, its essential character changes to that of a sugar confectionary and it would therefore be classifiable under a category that attracts 18% GST. 

There will be no tax demand for anyone for the past period on account of the latest clarification. There is no new tax on popcorns and this is only a clarification issued by the Council to avoid disputes due to interpretation, an official said.  

On used vehicles

Sitharaman said the Council decided to harmonise the sale of used vehicles and new vehicles including, electric vehicles. At present, all old and used vehicles attract 12% or 18% tax depending on their length and engine capacity. 

Tax is applicable only on the margin of the seller, and not on the entire value of the car. Besides, the tax is not applicable when it is sold by an unregistered person.

“We want to promote electric vehicles and GST Council is in favour of electric vehicles. When you buy used electric vehicle, when one individual sells to another individual, there is no GST,” Sitharaman said.

On rate rationalisation

Sitharaman explained that different ministerial panels examining issues of tax rate rationalisation, the future of GST compensation cess, and reduction of GST rate on health insurance and life insurance premia have sought extra time for studying them in detail. 

To a question from Mint, the finance minister explained that the ministerial group on tax rate rationalisation led by Bihar Deputy Chief Minister Samrat Chaudhary had not indicated how much extra time it requires to complete the study and make recommendations. 

The minister explained that tax rate changes are not made blindly and that rate rationalisation will be taken up “comprehensively”.

Inflation and GST registrations

Mint had reported earlier on Saturday that inflation and consumer appetite for purchases are two considerations that are expected to weigh on the GST Council when it examines a recommendations for further hikes in the indirect tax.

Saturday’s decisions indicate tax rate increases clearly will not be done in a hurry when retail inflation is above RBI’s target of 4% and when there are concerns about moderating urban consumption. 

Sitharaman explained that the ministers and officers will study a new concept note to make GST registrations simpler for small businesses. 

“Small companies face difficulties in registration. A concept note has been prepared and it received in principle approval of the GST council. This will bring in a new registration process, which will lead to an amendment in law,” the minister said. Once the Council approves, the law will be amended to further ease GST registration for small companies. 

Sitharaman said state ministers were not in favour of including jet fuel in GST, which was on the agenda for Saturday’s discussions.