Economy & BudgetImportant2024-12-21

55th GST Council Recommends Key Rate Reductions

Q: With reference to the recommendations of the 55th GST Council meeting, which of the following statements is/are correct? 1. The GST rate on Fortified Rice Kernel (FRK) was reduced to 5 percent. 2. The GST on the margin of used electric vehicles (EVs) was reduced to encourage green mobility.

1 only — Statement 1 is correct as the GST on FRK was reduced from 18 percent to 5 percent. Statement 2 is incorrect because the GST on the margin of used vehicles, including EVs, was actually increased from 12 percent to 18 percent.

In News

What Happened

The 55th Goods and Services Tax (GST) Council meeting was held on December 21, 2024, in Jaisalmer, Rajasthan. Chaired by Union Finance Minister Nirmala Sitharaman, the council recommended critical tax rate adjustments and compliance reliefs. Key decisions included reducing taxes on essential nutritional items, exempting certain healthcare treatments, and raising rates on the sale margins of used vehicles.

Why It Matters

These rationalisations reflect the government's dual focus on public welfare and revenue management. By exempting gene therapy and reducing taxes on fortified rice, the state supports healthcare and nutrition, while standardizing used vehicle taxes helps plug revenue gaps and unify tax brackets.

Background

History & Context

The GST Council is a constitutional body established under Article 279A to make recommendations on GST rates, exemptions, and administrative procedures. Over successive meetings, various Group of Ministers (GoM) panels have been tasked with rate rationalisation to simplify India's complex indirect tax structure. The 55th meeting specifically built on prior discussions to ease business compliance through a better Invoice Management System (IMS) and to address pressing sectoral demands.

What Changed

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Fortified Rice Kernel (FRK): BEFORE, it attracted an 18 percent GST rate. NOW, the rate has been significantly reduced to 5 percent to support public distribution and nutritional programs.
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Gene Therapy: BEFORE, certain highly expensive life-saving treatments lacked blanket tax protections. NOW, gene therapy has been entirely exempted from GST to ease the financial burden on patients.
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Used Vehicles and EVs: BEFORE, the sale of used cars and electric vehicles attracted a 12 percent GST on the margin value. NOW, this has been increased to 18 percent to unify taxation across vehicle categories.
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Compliance and Penalties: BEFORE, delayed filing of GSTR-9C incurred late fees, and penal charges by banks on loans were ambiguously taxed. NOW, late fees for GSTR-9C from 2017 to 2023 are waived, and it is clarified that penal charges by banks are GST-exempt.

Prelims Angle

NCERT Connection

This event directly applies concepts from Class 12 Macroeconomics Chapter 5, 'Government Budget and the Economy.' The GST Council's decisions illustrate how the government uses indirect taxation as a fiscal policy tool to achieve resource allocation (raising taxes on used cars) and redistribution (exempting life-saving gene therapy and lowering rates on fortified rice).

Practice Questions

Q1

Correct Statement(s)

With reference to the recommendations of the 55th GST Council meeting, which of the following statements is/are correct? 1. The GST rate on Fortified Rice Kernel (FRK) was reduced to 5 percent. 2. The GST on the margin of used electric vehicles (EVs) was reduced to encourage green mobility.

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