The 41st GST Council Meeting took place on August 27, 2020, virtually via a video call around 4:30 p.m. IST. It was held to specifically discuss the pressing issue of state compensation shortfalls. Chaired by Union Finance Minister Nirmala Sitharaman, the assembly saw participation of key stakeholders and state representatives. After a lot of discussion, the council concluded two solutions to bridge the gap between cess collections and compensation disbursements.
Beyond compensation issues, the Council tackled various GST-related concerns, including late fee rationalization and exempting IGST on COVID-19 equipment imports. The Council reintroduced the GST amnesty scheme, easing late fees for all taxpayers. They gave special consideration to small taxpayers.
The shortfall for the FY 2020-21 calculated and addressed was Rs 2,35,000 crore. Out of this, the implementation of GST caused a shortfall of Rs 97,000 crore, while the rest resulted from the COVID-19 pandemic. Options to address compensation shortfalls would impact state finances. Meanwhile, the measures to improve compliance signal a shift towards an efficient GST system with potential revenue gains.
This article delves into the meeting’s minutes, examining decisions, potential repercussions, and broader implications for the GST system.
Also Read: GST Notifications & Instructions: Summary and Key Updates of June 2020
Key Highlights of the 41st GST Meeting
The session of the 41st GST Council Meeting on August 27, 2020, played a crucial role in addressing a paramount concern – the compensation shortfall felt by states since the initiation of GST. As collections from cess proved insufficient for compensatory payouts, the meeting proposed two prospective solutions to bridge this fiscal gap.| Issue | Decision |
| Compensation shortfall | Two options presented to states: 1. Borrowing from a special window 2. Extending compensation cess beyond 2022 |
| GST amnesty scheme | Reintroduced to provide an opportunity for taxpayers to rectify past non-compliance |
| Rationalization of late fees | Late fees for GST non-compliance were rationalized, with a focus on easing the burden on small taxpayers |
| IGST exemption for COVID-19 equipment | IGST exempted on imports of COVID-19 treating equipment and relief materials up to August 31, 2021 |
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Tackling Compensation Shortfall
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Compensation Alternatives
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Utilizing a Special Window for Borrowing
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Extending Compensation Cess Beyond 2022
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Additional GST Considerations
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Revival of the GST Amnesty Scheme
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Streamlining Late Fees
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IGST Exemption for COVID-19 Equipment
Updates of the Meeting
Moreover, the updates from the 41st GST Council highlight the comprehensive strategy adopted to address various challenges faced by taxpayers in the initial stages of the GST regime. These initiatives, therefore, aimed to enhance compliance, streamline the tax system, and provide much-needed relief to businesses during a challenging period. Key updates that took place in the 41st GST Council Meeting are as follows:-
Reintroduction of GST Amnesty Scheme
The GST Council granted approval for the reinstatement of the GST amnesty scheme; consequently, taxpayers had a chance to address prior non-compliance within the GST framework. Moreover, the government introduced the GST Amnesty Scheme 2020 to motivate taxpayers to voluntarily disclose any lapses in filings, payments, or other deviations without facing severe penalties or legal actions.
Furthermore, this initiative aimed to foster transparency and compliance by offering a lenient avenue for rectification. Importantly, the scheme was inclusive; therefore, it extended its benefits to all taxpayers, irrespective of whether they had participated in previous amnesty schemes.
Key Features of the GST Amnesty Scheme 2020
- Taxpayers had the choice to voluntarily disclose any prior non-compliance with GST.
- Previously paid late fees would be waived.
- Taxpayers were obligated to settle only the outstanding tax liability, with no additional interest or penalties.
- The scheme was applicable within a limited timeframe, spanning from August 1, 2020, to December 31, 2020.
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Rationalization of Late Fees
Key Features of the Rationalized Late Fee Structure
- In the case of delayed submission of GSTR-1 (return of sales), the late fee was consequently reduced from Rs. 100 per day to Rs. 50 per day.
- Moreover, regarding the belated filing of GSTR-3B (monthly summary return), the late fee was diminished from Rs. 100 per day to Rs. 25 per day for small taxpayers (with a turnover of up to Rs. 5 crore) and Rs. 50 per day for other taxpayers.
- Furthermore, for overdue tax payments, the late fee was reduced from 18% of the tax amount to 9% of the tax amount.
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IGST Exemption for COVID-19 Equipment
As a pivotal initiative to bolster the healthcare sector amidst the COVID-19 pandemic, the GST Council, therefore, granted an exemption on Integrated GST (IGST) for the import of COVID-19 treatment equipment and relief materials.
Additionally, this waiver, operational from June 29, 2020, to August 31, 2021, was designed to lower the expenses associated with importing critical medical supplies, thereby ensuring sufficient availability of these items to effectively combat the ongoing pandemic.
Items Covered by the IGST Exemption
- Personal protective equipment (PPE) kits
- Ventilators
- Oxygen concentrators
- COVID-19 testing kits
- Other medical equipment and supplies specifically notified by the government
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Extension of Time Limit for Filing Annual Returns
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Facilitation of Input Tax Credit
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Simplification of GST Registration Process
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Extension of Time Limit for Composition Scheme
Outcomes
| Issue | Update |
| Compensation shortfall | States provided with two options to meet the shortfall: (i) Borrowing from a special window (ii) Extending compensation cess beyond 2022 |
| GST amnesty scheme | Reintroduced to provide an opportunity for taxpayers to rectify past non-compliance |
| Rationalization of late fees | Late fees for GST non-compliance were rationalized, with a focus on easing the burden on small taxpayers |
| IGST exemption for COVID-19 equipment | IGST exempted on imports of COVID-19 treating equipment and relief materials up to August 31, 2021 |
| Extension of time limit for filing annual returns | Time limit for filing annual returns extended to January 31, 2021 |
| Facilitation of input tax credit | Measures introduced to simplify the process of availing input tax credit (ITC) |
| Simplification of GST registration process | GST registration process streamlined to make it more user-friendly and reduce the number of documents required |
| Extension of time limit for composition scheme | Time limit for opting for the GST composition scheme extended to March 31, 2021 |
Options for Addressing Compensation Shortfall
The GST Council presented states with two choices to address the compensation shortfall resulting from GST implementation:Option 1: Special Window Borrowing
States could opt to borrow from a special window provided by the Centre, with repayment facilitated through future cess collections.Option 2: Extension of Compensation Cess Beyond 2022
To ensure continuous compensation payments, this option suggested prolonging the compensation cess period beyond its initial expiration in June 2022. This decision to offer states these compensation bridge options marked a significant outcome, acknowledging the financial challenges states faced due to GST implementation and providing sustainable support.Measures for Enhanced Compliance and Reduced Taxpayer Burden
The GST Council sanctioned measures to boost GST compliance and ease the burden on taxpayers, including:-
Revival of GST Amnesty Scheme
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Rationalization of Late Fees
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Extended Time Limit for Annual Returns
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Facilitation of Input Tax Credit
Supporting the Healthcare Sector Amid COVID-19
The GST Council implemented measures to aid the healthcare sector during the pandemic, notably:-
IGST Exemption for COVID-19 Equipment
Additional Thoughts
The 41st GST Council Meeting played a pivotal role in addressing the critical agenda of the compensation shortfall faced by states and the challenges posed by the COVID-19 pandemic. Consequently, the Council gave it the much-needed immediate attention and took the necessary steps.
The options for compensating the shortfall had a crucial impact on state finances. Moreover, borrowing from a special window provided immediate relief, while extending the compensation cess carried long-term consequences. Therefore, states needed to carefully weigh the pros and cons to make well-informed decisions.
Additionally, measures to enhance compliance and reduce the taxpayer burden were well-received. The reintroduction of the GST amnesty scheme, in particular, allowed rectification without severe penalties. Furthermore, rationalizing late fees and facilitating input tax credit aimed to make the GST regime more user-friendly.
Equally important, crucial steps were taken to support the healthcare sector during the pandemic. Specifically, the IGST exemption on essential medical imports significantly eased costs for hospitals and healthcare providers.
Ultimately, the decisions made at the meeting had the potential to shape the long-term trajectory of the GST regime in the country. Therefore, the support for healthcare and financial stability remained the ultimate goal.
Overall, the 41st GST Council Meeting exemplified the government’s commitment to addressing challenges and supporting taxpayers and the healthcare sector during critical times.More Information
Here are some links to study about the 41st GST Council Meeting:- GST Council’s 41st Meeting Highlights, Updates, and Outcomes
- 41st GST Council Meeting Summary Report
- Highlights of the 41st GST Council Meeting
- The 41st GST Council Meeting: Key Decisions and Implications
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