GST Council gives relief to foreign airlines; ministerial panels to study future of cess, rate cut on insurance

The Goods and Services Tax (GST) Council on Monday decided to give tax relief to foreign airlines in India, certain helicopter services and research institutions, cut tax on cancer drugs and certain snacks, and tasked a panel of ministers to study the demands for tax relief on insurance premiums.

The federal indirect taxes body also formed a group of ministers to look into the future of the GST compensation cess levied on automobiles, aerated drinks and tobacco, as it cannot be collected once the Centre fully pays off the market loans taken to give liquidity support to states during the pandemic or beyond March 2026, whichever is earlier. However, given the revenue requirement of Centre and states for various development activities, this levy may continue in some other form.

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Union finance minister Nirmala Sitharaman, who chaired the Council meeting, explained that the ministerial group on tax rate rationalization led by Bihar deputy chief minister Samrat Chaudhary will have new members to study the issue of rate reduction on health insurance premiums. This group will give its report in October and subsequently, the GST Council will consider its proposals at its November meeting, the minister explained. 

“There was good discussion, but the details of the discussion made us feel that there is more to understand.. The November GST Council meeting could take a call on that,” Sitharaman said at a press conference along with other top ministry officials.

Exemption for airlines

Revenue secretary Sanjay Malhotra explained that the Council decided to exempt import of services by a foreign airline from a related person or any of its arms outside India from GST, when such service is availed without any consideration or payment. The Council also recommended dropping tax notices issued to some airlines for such services imported from their overseas arms. This regularization for the past period is done on ‘as is where is’ basis, which suggests that if a business which received a tax notice has paid the tax, there will be no refund, but if it has not been paid, it will be condoned. 

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The relief for airlines will put to rest the recent show cause notices where a GST demand of about ₹39,000 crore was raised by the Directorate General of GST Intelligence (DGGI) on foreign airlines operating through branch offices in India, said Rajat Bose, partner at law firm Shardul Amarchand Mangaldas & Co.

Revenue secretary Malhotra also explained that on the issue of taxing software exporters, a clarification was issued in June this year. “It is an ongoing exercise. As and when law and fitment committee examines, and if there is a need, we shall issue further clarifications when required,” Malhotra said, explaining the government’s efforts to offer tax certainty to businesses.

Cancer drug rates drop

The Council decided to reduce the tax rate on cancer drugs Trastuzumab Deruxtecan, Osimertinib and Durvalumab from 12% to 5%. Tax rates on certain snacks--ready to eat extruded or expanded products, has been reduced from 18% to 12%. However, tax rate on car seats has been increased from 18% to 28%.

The Council also decided to notify 5% GST on transport of passengers by helicopters on seat share basis and to regularize the GST for past period on ‘as is where is’ basis.  Charter of helicopter will continue to attract 18% GST.

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The Council also recommended exempting the supply of research and development services by certain notified government entity or a research association, university, college or other institutions exempt from GST whether they use government or private grants. Tax notices issued to about seven such entities will also be dropped. 

“The exemption given to research grants will ensure that more money flows into the research and development activity and regularisation of past demands on an as is where is basis is a good move," said M.S. Mani, partner, Deloitte India.

e-Invoicing for retail

The tax body also decided to introduce e-invoicing at the retail level on a voluntary basis. E-invoicing which involves real-time reporting of transactions to a designated government portal now applies only to wholesale transactions above a specified threshold.  

The Council also deliberated on the GoM’s status report on online gaming.

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From 1 October 2023, entry-level bets placed on online gaming platforms and casinos were subject to 28% GST. Prior to that, many online gaming companies were not paying 28% GST, claiming there were differential tax rates for games of skill and games of chance.

The GST Council in its meeting in August 2023 had clarified that online gaming platforms were required to pay 28% tax and subsequently, Central GST law was amended to make the taxation provision clear.

Offshore gaming platforms were also mandated to register with GST authorities and pay taxes, failing which the government would block those sites. The Council had then decided that the taxation on the online gaming sector would be reviewed after six months of its implementation.