41st GST Council Meeting Highlights, Updates, Outcome and More

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.

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.

1. Tackling Compensation Shortfall

At the forefront of discussions was the motto to rectify the shortcomings experienced by states during the GST transition. This ₹2.35 lakh crore deficit resulted from the combined effects of GST implementation challenges and the economic loss caused by the COVID-19 pandemic.

2. Compensation Alternatives

To address the compensation shortfall, they presented two options:

• Utilizing a Special Window for Borrowing

States could opt to borrow from a designated special window provided by the Centre, with the repayment facilitated through future cess collections.

• Extending Compensation Cess Beyond 2022

With the existing compensation cess set to conclude in June 2022, this option proposed an extension of the cess period to sustain ongoing compensation disbursements.

3. Additional GST Considerations

Beyond compensation matters, the meeting deliberated on other GST-related issues:

• Revival of the GST Amnesty Scheme

The Council sanctioned the revival of the GST amnesty scheme, offering taxpayers an avenue to rectify past non-compliance.

• Streamlining Late Fees

A concerted effort to rationalize late fees for GST non-compliance, particularly focusing on alleviating the burden for small taxpayers.

• IGST Exemption for COVID-19 Equipment

To bolster the healthcare sector during the pandemic, the government exempted imports of COVID-19 treatment equipment and relief materials from Integrated GST (IGST) until August 31, 2021.

The 41st GST Council Meeting marked a substantial stride in addressing the compensation shortfall and implementing timely measures to enhance compliance and support the healthcare sector during the COVID-19 crisis. The decisions made in this meeting have the potential to resonate within the GST framework, consequently exerting a lasting impact on state finances and fiscal dynamics in the long term.

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:

1. 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.

2. Rationalization of Late Fees

The GST Council streamlined late fees for instances of GST non-compliance; consequently, this move aimed to alleviate the load on taxpayers and enhance overall compliance. Moreover, the revised late fee system was simplified and standardized across various taxpayer categories to ensure increased consistency.

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.

3.  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

The removal of IGST marked a substantial step in tackling the immediate hurdles confronted by the healthcare sector amid the pandemic. It played a crucial role in alleviating the financial burden on hospitals, medical institutions, and healthcare providers.

4. Extension of Time Limit for Filing Annual Returns

The GST Council prolonged the deadline for submitting annual returns (GSTR-9) for the fiscal year 2019-20, extending it from October 31, 2020, to January 31, 2021. This extension was authorized to afford taxpayers extra time to fulfill their filing obligations, recognizing the impediments posed by the COVID-19 pandemic.

5. Facilitation of Input Tax Credit

The GST Council implemented initiatives to enhance the accessibility of input tax credit (ITC), a vital tool for businesses to mitigate their tax obligations. These measures encompassed the simplification of the ITC claiming process for small taxpayers and granting taxpayers the option to submit amended returns for rectifying errors or omissions pertaining to ITC claims.

6. Simplification of GST Registration Process

The GST Council simplified the GST registration procedure for taxpayers by enhancing the user-friendliness of the online registration portal and minimizing the documentation requirements. These modifications were geared towards rendering the GST regime more accessible and less cumbersome, particularly for newly established businesses.

7. Extension of Time Limit for Composition Scheme

The GST Council extended the deadline for selecting the GST composition scheme, a simplified tax compliance option for small businesses, from March 31, 2020, to March 31, 2021. Consequently, this extension provided eligible businesses with additional time to assess the suitability of the composition scheme and make well-informed decisions.

Outcomes

Also Read: GST Notifications & Instructions: Summary and Key Updates of June 2020

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

This scheme’s revival allowed taxpayers to rectify past non-compliance without severe penalties, fostering improved compliance and heightened tax revenue.

• Rationalization of Late Fees

Adjustments to late fees enhanced taxpayer-friendliness and reduced financial penalties for delayed filings or payments, promoting compliance and punctual tax payments.

• Extended Time Limit for Annual Returns

Extending the annual return filing deadline offered taxpayers more time for compliance, particularly beneficial during the challenges of the COVID-19 pandemic.

• Facilitation of Input Tax Credit

Streamlining input tax credit utilization simplified the process and lightened compliance burdens for businesses, enhancing cash flow and encouraging timely tax payments.

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

Exempting IGST on COVID-19 equipment imports significantly lowered costs; consequently, it ensured ample availability of crucial medical supplies to combat the pandemic.

These initiatives underscore the GST Council’s dedication to supporting the healthcare sector during a critical period, extending relief to hospitals, medical institutions, and healthcare providers.

The results of the 41st GST Council Meeting significantly impacted both the GST framework and state finances. Consequently, the choices offered to states to address the compensation shortfall, the approved measures for enhancing compliance and reducing the taxpayer burden, and the initiatives supporting the healthcare sector amid the COVID-19 pandemic collectively represented substantial advancements that shaped the direction of the GST regime.

Also Read:

40th GST Council Meeting Highlights, Updates, Outcome and More

Late Fees And Penalties For Non-Compliance In GSTR-10

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

[https://cleartax.in/s/41st-gst-council-meet-news](https://cleartax.in/s/41st-gst-council-meet-news)

• 41st GST Council Meeting Summary Report

[https://gstcouncil.gov.in/41st-gst-council-meeting](https://gstcouncil.gov.in/41st-gst-council-meeting)

• Highlights of the 41st GST Council Meeting

[https://gstcouncil.gov.in/41st-gst-council-meeting](https://gstcouncil.gov.in/41st-gst-council-meeting)

• The 41st GST Council Meeting: Key Decisions and Implications

[https://cleartax.in/s/41st-gst-council-meet-news](https://cleartax.in/s/41st-gst-council-meet-news)

Aaryan Singh

B.Com degree with finance and accounting Specialisation in Goods and Service Tax (GST) and taxation system Completed certification course on GST from ICAI in 2022 Online GST practitioner course completed in 2023 from Indian Institute of Skill Development and Training.

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