Latest news with #CompensationCess
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Business Standard
a day ago
- Business
- Business Standard
GST rate rejig: Tractors, ACs may emerge as key beneficiaries, says Nomura
Nomura on GST rate rejig: The long-pending overhaul of India's Goods and Services Tax (GST) structure may finally be gaining traction, with potential implications for sectors like agriculture and consumer durables. According to a recent note by Nomura, if the proposed rationalisation plan goes through - including the scrapping of the 12 per cent GST slab - tractors and air conditioners (ACs) could see meaningful tax relief that may drive demand and improve pricing dynamics. 'As highlighted in our analysis, tractors fall in the 12 per cent tax bracket. In the event this slab is removed, we believe tractors are more likely to be moved to the 5 per cent GST rate, rather than 18 per cent,' Kapil Singh and Siddhartha Bera of Nomura said. 'This should enhance affordability and stimulate demand, particularly ahead of the transition to stricter TREM-IV emission norms.' Nomura sees this as a tailwind for manufacturers like Mahindra & Mahindra (M&M), which commands a dominant share in India's tractor market. 'While OEMs are expected to pass on most of the tax reduction to end-users, the change could still improve pricing power and operating leverage,' the brokerage noted. The 12 per cent GST slab, introduced at the time of GST rollout in 2017, covers a wide range of goods, including packaged foods, household items, and select medical supplies. However, it has long been criticised as an unnecessary middle-tier that complicates compliance without delivering considerable revenue benefits. The GST Council, which is expected to meet later this month, is reportedly considering eliminating this slab entirely and migrating items to either the 5 per cent or 18 per cent categories. Durables, insurance may also benefit if slabs are realigned The consumer durables segment may also benefit, particularly ACs, which currently attract the highest GST rate of 28 per cent. 'ACs, along with TVs larger than 32 inches, are among the few household appliances still taxed at 28 per cent,' Nomura pointed out. 'If the Council decides to bring ACs down to 18 per cent, it would partially offset the cost impact from the upcoming Bureau of Energy Efficiency (BEE) norms effective January 2026, which are expected to increase prices by 3-5 per cent.' This could be particularly positive for listed companies like Voltas and Havells, with Nomura maintaining a 'Buy' rating on the latter. 'Any moderation in GST would help improve volume growth and mitigate the effect of cyclical input cost pressures,' the report stated. Term life insurance could also see a reprieve, with the GST rate on pure protection plans potentially being cut from 18 per cent to 5 per cent. 'Even at the reduced rate, insurers are likely to retain the ability to claim input tax credit,' Nomura added, suggesting that this could make term products more attractive to price-sensitive consumers. Compensation Cess regime may give way to targeted levies On the other hand, the end of the Compensation Cess regime - currently set for March 2026 - is unlikely to bring immediate relief for big-ticket items such as SUVs and luxury cars. Nomura believes the cess will likely be replaced with more targeted levies. 'We don't expect any material reduction in effective tax rates on large vehicles. The cess might be reintroduced under new heads such as a 'Clean Energy Cess',' it said. However, the introduction of any new cess outside the existing GST framework would require a constitutional amendment, as current GST law does not permit fresh levies of this kind. The Compensation Cess, originally designed to compensate states for revenue shortfalls post-GST implementation, has largely funded the Centre's borrowings during the pandemic. However, the proposed shift to a new cess framework - focused on health and sustainability - would require a constitutional amendment, as the current GST law does not allow the introduction of new levies outside the existing structure. 'The government appears to be signalling a shift away from transitional mechanisms to more policy-oriented levies that align with public health and environmental objectives,' Nomura concluded. While consensus on GST reform has proved elusive despite multiple Council meetings, including the most recent one in December 2024, Nomura's view suggests a window of opportunity may be opening for a long-awaited simplification of the tax structure.
India Today
25-06-2025
- Business
- India Today
GST Council meeting: What to expect from upcoming meet?
The 56th meeting of the Goods and Services Tax (GST) Council is expected to be held in the last week of June or early July, ahead of the Monsoon Session of meeting is likely to take up several important matters, including some long-standing demands from industry groups and state of the major items on the agenda could be the future of the Compensation Cess. Originally introduced to help states cover revenue shortfalls after the launch of GST, the cess may continue beyond its planned to experts, states are still facing revenue pressure and have requested an extension of the cess. 'While this extension provides financial certainty to states, it also means that businesses and consumers will continue to bear the extra cost,' said Shivashish Karnani from DPNC Global's GST added that the Council must also lay out a time-bound plan to eventually phase out the cess, once GST revenues OF 12% GST RATEAnother key expectation from the upcoming meeting is the possible removal of the 12% tax slab. This step would be part of the broader effort to simplify the GST rate structure. Experts believe this move could help reduce confusion for businesses and make compliance easier. However, the decision comes with its own set of challenges.'This would be a big step towards GST rate rationalisation,' said Karnani. 'The main concern will be to decide whether to move current 12% items to 5% or 18%. Lowering them to 5% may reduce government income, while raising them to 18% could affect consumers.' The Council will have to strike a careful balance between revenue needs and simplicity in tax ON INTERMEDIARY SERVICESThe GST treatment of intermediary services, especially those dealing with foreign clients, is another area where businesses are hoping for clarity. Many service providers have long argued that they should be treated as exporters and not taxed in India. This has led to ongoing disputes between companies and tax authorities.'There is hope that the GST Council will finally address the issue of intermediary services,' said Karthik Mani, Partner – Indirect Tax, BDO India. 'If these services are treated as exports and made zero-rated, it will not only boost the services sector but also bring an end to the many legal battles happening in courts.' However, he noted that proper foreign exchange must be realised for companies to claim these APPELLATE TRIBUNALBusinesses are also looking forward to an update on the setting up of the GST Appellate Tribunal (GSTAT). Currently, companies have to go to High Courts for appeals because the tribunal has not yet started operations.'This is causing a build-up of pending cases in courts,' said Mani. 'It is important that the GST Council checks the progress on the tribunal and takes steps to make it operational soon.'POSSIBLE RATE CHANGES AND OTHER DECISIONSExperts also expect the Council to review GST rates on several goods and services. These include drones, life and health insurance premiums, and the fees collected by municipalities for services such as Floor Space Index (FSI) approval. Food delivery apps may also come under the scanner for the way they collect and pay GST.'Rate rationalisation on these items is one of the key areas where decisions are expected,' said Mani. 'We may also get clarity on whether the charges collected by local authorities fall under the GST framework.'GST REGISTRATION NORMSThere is also talk of aligning state-level GST registration processes with the Central Board of Indirect Taxes and Customs (CBIC)'s streamlined system. Businesses operating in more than one state often face delays and rejections due to different rules in each state.'If all states follow a common standard for GST registration, it would make things much easier for businesses,' said Karnani. 'It would speed up registration and allow for smoother operations across India.'The previous GST Council meeting took place on December 21, 2024, in Jaisalmer. Since then, many matters have remained pending. Industry groups and tax experts now hope that the upcoming meeting will lead to action on several of these long-standing the final agenda of the 56th meeting has not been released yet, the discussions are expected to play a big role in shaping the future of India's indirect tax system. - Ends advertisement
India Today
19-06-2025
- Business
- India Today
GST Council may replace compensation cess with 2 new levies: Report
The GST Council is considering a major overhaul of the current cess structure, with plans to introduce a Health Cess and a Clean Energy Cess once the existing compensation cess expires in March 2026, CNBC-TV18 reported, citing government sources. The proposal is expected to be taken up by the Group of Ministers (GoM) on Compensation Cess, chaired by Minister of State for Finance Pankaj Chaudhary. Sources quoted in the report said that a meeting of the GoM is likely to be scheduled soon, and the GST Council may deliberate on the matter before the Monsoon Session of Parliament. The compensation cess was introduced to offset states' revenue losses following the rollout of GST in July 2017. Initially intended to end in June 2022, the cess was extended to help repay loans raised to cover the compensation gap during the pandemic. It is now scheduled to legally end on March 31, 2026. The GoM has reportedly reached a near-consensus on replacing the current cess with two separate levies. The Health Cess would be applicable on sin goods such as tobacco products, while the Clean Energy Cess would target items like coal and high-end automobiles. These proposals, sources said, reflect the government's emphasis on public health and environmental priorities. The idea is to continue generating revenue through a cess-based model, but with a sharper focus on social and sustainability goals, rather than extending the compensation mechanism designed for states. Most states are said to be supportive of the move, especially since it targets non-essential and harmful goods. However, the GoM is expected to meet once more before formally submitting its recommendations to the Council. Despite broad agreement within the GoM, legal and constitutional issues could complicate the rollout. The current GST framework does not permit the introduction of new cesses, and any fresh levy would likely require a constitutional amendment. Tax experts quoted by CNBC-TV18 noted that the compensation cess was allowed only as a transitional arrangement. Introducing new cesses, they argue, could violate the fundamental GST principle of 'one nation, one tax.' Concerns have also been raised about how revenue from the proposed cesses would be distributed. One tax expert told CNBC-TV18 that if the Centre retains the entire proceeds, states may oppose the plan, particularly since they had surrendered their individual taxation powers in exchange for a shared revenue system. The GoM on Compensation Cess was set up by the GST Council in September 2024 to chart a post-cess roadmap. It was initially expected to submit its report by the end of December 2024, but the timeline was extended. The full GST Council, which includes the Union Finance Minister and finance ministers of all states, is now expected to meet in late June or early July. Apart from the cess issue, the agenda may include discussions on GST rate rationalisation and steps to simplify compliance.
