Key Amendments Recommended by GST Council Beyond Rate Changes 

The 56th Meeting of GST Council has proposed several significant amendments beyond just rate changes. To curb tax evasion, the tax base for products like pan masala and tobacco will shift from the manufacturer’s transaction value to the final retail sale price. Additionally, an ad-hoc IGST and compensation cess exemption has been granted for an armoured sedan car imported for the President of India. To address misuse, the council has clarified that stand-alone restaurants cannot opt for the 18% GST rate with input tax credit, solidifying the 5% GST without input tax credit for these establishments. The council also recommended extending the 90% provisional refund benefit to inverted duty structure cases and introduced an optional, automated registration scheme for small, low-risk businesses with a monthly B2B tax liability of less than ₹2.5 lakh. Furthermore, a simplified, single registration process is planned for small suppliers selling goods through e-commerce operators, eliminating the need for separate state-wise registrations. Finally, the council proposed to amend the law to allow post-sale discounts to be deducted from the taxable value, provided a credit note is issued and the recipient reverses the corresponding input tax credit.

Key Amendments Recommended by GST Council Beyond Rate Changes

1) Shift from Transaction Value to Retail Sale Price (RSP) as Tax Base for Pan Masala And Tobacco Products

 Earlier System (Before Amendment)

• GST/Compensation Cess was levied on the transaction value (i.e., the value at which manufacturer sold goods to distributor/wholesaler).
• Example:
  • Manufacturer sells a pouch of pan masala to distributor at ₹1.00.
  • Distributor sells to retailer, and the pouch is sold to the consumer at ₹2.00 (MRP/RSP).
  • GST/cess was applied only on ₹1.00, even though consumer pays ₹2.00.

 New System (After Amendment)

• GST/Compensation cess will be levied on the Retail Sale Price (RSP/MRP) that is printed on the pack.
• Example:
  • Same pouch has RSP ₹2.00.
  • Even if the manufacturer sells to distributor at ₹1.00, the taxable base will be ₹2.00 (RSP).
  • Suppose GST + Cess = 100% (illustrative):
    • Earlier tax = 100% of ₹1.00 = ₹1.00
    • Now tax = 100% of ₹2.00 = ₹2.00

2) Ad hoc IGST & Compensation Cess Exemption on Armoured Sedan Car Imported for President of India

The GST Council approved that when the President’s Secretariat imports a new armoured sedan car for official use of the President of India:

• IGST (Integrated GST)
• Compensation Cess
  will be exempted on an ad hoc basis.

3) Clarification on GST for Stand-Alone Restaurants vs. Restaurants in Specified Premises

Background

• Restaurant services are generally taxed at 5% GST but without ITC (Input Tax Credit).
• Exception: If the restaurant is located in a “specified premises” (i.e., part of a hotel/inn/guesthouse/club with room tariff > ₹7,500 per unit per day), then GST is 18% with ITC.

 The Problem

• Some stand-alone restaurants (not inside hotels) were misusing the law by declaring themselves as “specified premises” just to charge 18% GST with ITC.
• This was creating confusion, misuse of credit, and litigation.

 The Council’s Recommendation

The GST Council has recommended to add Explanations to the definition of “specified premises” under the GST rate notifications, clarifying that:

“A stand-alone restaurant cannot declare itself as a ‘specified premises’.”

 Effect of the Clarification

• Stand-alone restaurants → GST @ 5% without ITC
• Restaurants inside hotels/inns/guesthouses/clubs where room tariff > ₹7,500/day → GST @ 18% with ITC.

Example

Case 1 – Stand-alone Restaurant

• Restaurant “X” is operating on its own (not inside a hotel).
• Bill = ₹1,000.
• GST = 5% → ₹50.
• Cannot claim ITC.

Case 2 – Restaurant inside a Hotel (room tariff ₹9,000)

• Restaurant “Y” is located inside a luxury hotel.
• Bill = ₹1,000.
• GST = 18% → ₹180.
• Can claim ITC (e.g., on rent, food inputs, etc.)

4) Key Recommendations of the Council

1. General Implementation Date

• • The Council agreed in principle that revised GST rates should take effect from 22 September 2025.
  • But, since there are pending loan + interest repayment obligations in the Compensation Cess account, the rollout will be phased.

a) Services

• All changes in GST rates of services → effective 22 September 2025.

b) Goods (except tobacco-related items)

• All goods (except pan masala, gutkha, cigarettes, chewing tobacco, unmanufactured tobacco, bidi) → revised GST rates from 22 September 2025.

c) Tobacco & Pan Masala sector

• These products will continue at existing GST + Compensation Cess rates.
• Reason → government needs the cess revenue to clear outstanding loans and interest taken to compensate states during GST transition.
• Only after repayment is complete, revised rates will apply.

Final decision on date of transition (tobacco sector)

• The Council will decide the actual date of transition for these items once cess account obligations are discharged.

5) Current Position (before change)

• Section 54(6) of CGST Act, 2017:
  • Provides for 90% provisional refund only for zero-rated supplies (exports + supplies to SEZ).
  • In cases of Inverted Duty Structure (IDS), refund applications are processed only after full verification, which takes time and blocks working capital.

 Proposed Change

• Amendment in Section 54(6):
  • Extend the benefit of 90% provisional refund to IDS refund claims
  • This would put IDS refund applicants at par with exporters.

Interim Decision (before amendment)

• The Central Government has decided that even before the law is formally amended, the system will be made operational by CBIC through administrative instructions.
• CBIC field formations will be directed to:
  • Sanction 90% of refund claimed on IDS cases provisionally,
  • Based on system-driven risk evaluation (like in zero-rated cases).

Implementation Date

• Effective from: 1 November 2025

Example

Suppose a textile manufacturer files a refund claim under IDS:

• Refund claim amount = ₹10 crore
• Under new system →
  • 90% (₹9 crore) released provisionally within a short time,
  • Balance 10% (₹1 crore) released after verification.

This reduces working capital blockage for industries heavily affected by IDS (e.g., textiles, footwear, fertilizers).

 Objective

• To make GST registration faster and easier for small & low-risk businesses.

Reduce physical verification and departmental

6) New Optional Registration Scheme for Small Businesses

Objective

• To make GST registration faster and easier for small & low-risk businesses.
• Reduce physical verification and departmental delays.

 Key Features of the Scheme

1.Optional

• Taxpayers may choose this scheme voluntarily.
• They can also withdraw anytime if their business grows or they no longer qualify.

2. Automated Registration

• Registration will be auto-granted within 3 working days from submission of application.
• Applies to low-risk applicants and those who self-declare that their monthly B2B tax liability ≤ ₹2.5 lakh.

3. Eligibility Condition

• Output tax liability on supplies to registered persons (B2B) should not exceed ₹2.5 lakh/month (all GST components combined: CGST, SGST/UTGST, IGST).

4. Coverage

• Expected to benefit around 96% of new applicants (i.e., most small businesses).

5. Implementation Date

• To be made operational from 1 November 2025.

Example

Case 1 – Eligible Applicant

• A small trader applies for GST registration.
• Supplies to registered dealers: ₹8 lakh per month (GST @ 18% = ₹1.44 lakh tax).
• Since output tax liability < ₹2.5 lakh/month, he qualifies.
• His registration will be auto-approved within 3 days.

Case 2 – Not Eligible Applicant

• A manufacturer supplies to registered buyers worth ₹20 lakh/month (GST @ 18% = ₹3.6 lakh tax).
• Since output tax liability > ₹2.5 lakh/month, he cannot opt for simplified registration.
• He will go through the regular registration verification process.

7) Simplified registration mechanism for small suppliers supplying through ECOs

Current Problem under GST

• Under present rules:
  • If a small seller wants to sell via Amazon, Flipkart, etc., he needs GST registration in every State where he supplies.
  • Also, he must maintain a principal place of business (PPoB) in each State.
  • This creates huge compliance costs and discourages small suppliers from joining e-commerce.

 New Council Recommendation

1.In-principle approval

• The GST Council has agreed in principle to allow a simplified registration mechanism for small suppliers supplying through ECOs.

2. Key Feature

• Small suppliers can register under a special simplified GST registration (likely single registration instead of multiple state registrations).
• No need to maintain principal place of business in every State where supplies are made through ECOs.

3. Benefit

• Removes compliance barrier → enables small sellers to expand across India via e-commerce.
• Helps in formalisation of economy (many unregistered small sellers will now enter GST net).

4. Next Steps

• Detailed modalities (who qualifies, turnover limits, ITC eligibility, return filing rules, etc.) will be drafted and placed before the GST Council in the next meeting(s).

 Example

Current Framework (without scheme)

• A handicraft seller in Rajasthan wants to sell on Amazon to buyers in Maharashtra, Delhi & Karnataka.
• He must take separate GST registration in all these states + maintain PPoB (e.g., a godown or office).

Under Proposed Scheme

• The same seller may get a single simplified GST registration, declare Rajasthan as his base.
• Supplies made via Amazon to buyers in Delhi/Maharashtra/Karnataka can be covered without separate state-wise registration.
• His compliance becomes cheaper and faster, encouraging more small sellers to use ECOs.

8) Amendment of Place of Supply Rules for Intermediary Services under IGST Act

Current Law (before amendment)

• Section 13(8)(b) of the IGST Act, 2017:
  • For intermediary services, the place of supply = location of the supplier (in India).
  • This means that even if an Indian intermediary provides services to a foreign client, the supply is treated as domestic, not an export.

Result:

• GST is levied on such transactions.
• Indian intermediaries lose export benefits (zero-rating, refunds).
• This created competitive disadvantage compared to global players.

 Recommended Amendment

• The Council has recommended omitting Section 13(8)(b).
• After omission → the place of supply will be determined under Section 13(2) (default rule).
• Under Section 13(2):
  • Place of supply = location of the recipient (outside India, if client is abroad).

Effect:

• If recipient is outside India → transaction will qualify as export of services.
• Eligible for zero-rating under GST → no tax payable + ITC refund available.

 Example

Case 1 – Current Law (with 13(8)(b))

• An Indian consultant acts as an intermediary for a Singapore company, arranging deals with an Indian buyer.
• Client is outside India, but since supplier is in India, place of supply = India.
• GST payable in India → not treated as export.

Case 2 – After Amendment (13(8)(b) omitted)

• Same facts: Indian consultant provides services to Singapore client.
• Place of supply = location of recipient = Singapore.
• Treated as export of services → zero-rated under GST.
• Consultant can claim refund of ITC.

9) Key Legal and Compliance Amendments Recommended by GST Council for Post Sale Discount

Current Law (before amendment)

Section 15(3) of CGST Act, 2017 (Valuation of supply) says:

A discount can be excluded from the transaction value if:

1.It is established in terms of an agreement entered into before or at the time of supply, and

2. It is linked to relevant invoices, and

3. The recipient reverses ITC to the extent of the discount (if applicable).

Problem:

• Condition 15(3)(b)(i) (agreement before supply + invoice linkage) was too rigid.
• In practice, many post-sale discounts (like year-end turnover discounts, performance incentives, rebates) are decided later.
• Hence, such discounts were not excluded from taxable value → suppliers had to pay GST on full value, even if they gave discounts later.

Amendment Recommended by GST Council

1.Omit Section 15(3)(b)(i)

• Removes the requirement that discount must be pre-agreed and linked to invoices.
• Frees suppliers from proving “agreement before supply”.

2. Amend Section 15(3)(b)

• Now, discounts will be recognised if granted via a credit note under Section 34.
• ITC reversal by recipient will ensure tax neutrality.

3. Amend Section 34 (Credit Notes)

• Explicit reference to Section 15(3)(b) will be inserted.
• Ensures recipient reverses ITC proportionately when post-sale discounts reduce value.

4. Rescind Circular No. 212/6/2024-GST (26 June 2024)

• That circular had prescribed a mechanism to comply with 15(3)(b)(ii).
• Since law is being amended, circular is no longer needed.

Practical Example

Current Law (before amendment)

• A supplier sells goods worth ₹1,00,000 + GST (18%) = ₹1,18,000.
• At year-end, he gives a turnover discount of 10% (₹10,000).
• Since discount wasn’t agreed before supply → cannot reduce taxable value.
• Supplier pays GST on ₹1,00,000 even though he effectively received ₹90,000.

After Amendment

• Supplier issues a credit note of ₹10,000 under Section 34.
• Value of supply = ₹90,000.
• GST payable = 18% of ₹90,000 = ₹16,200.
• Recipient reverses proportionate ITC of ₹1,800.

So, Apart from rate changes, the Council also recommended important legal and compliance amendments that are discussed above.

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Also Read: 1. FAQs on decisions of 56th GST Council Meeting 2. Recommendations of 56th Meeting of GST Council