The 56th meeting of the Goods and Services Tax (GST) Council, postponed from its June schedule, will now be held in the last week of June or early July. The agenda for the meeting will include discussions on doing away with or paring down items in the 12 per cent tax slab list, among other issues such as reclassification of service intermediaries.
With the Parliament’s monsoon session looming, the GST Council’s meeting assumes greater significance, especially as its take on finalisation of the tax treatment on service intermediaries could offer relief to the sector to the tune of thousands of crores. There have also been long-standing demands from the state governments and industry heads to discuss certain issues such as the future of the Compensation Cess, which is currently scheduled to expire in March 2026.
Despite rules requiring the GST Council to meet once every quarter or every three months, there has been no meeting held since December, 2024, when it was held in Jaisalmer. Disagreements over the location of the meeting have said to be the reason for the delay.
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An official has been quoted by several newspapers as saying that one of the main topics of deliberation will include a decision on the 12 per cent tax slab, as part of the overall rate rationalisation and simplification efforts.
However, doing away with the 12 per cent rate will reduce the number of tax rates under GST from four to three: 0 per cent, 5 per cent, 18 per cent, and 28 per cent slabs. The other slabs include specialised rates of 0.25 per cent on diamonds, 3 per cent on gold and silver, or the additional compensation cess on items in the 28 per cent slab.
“It is improbable that the GST Council will completely abolish the 12 per cent tax slab,” said Saurabh Agarwal, Tax Partner at EY India. “Instead, they are likely to gradually reduce the number of items in this category by shifting them to the 5 per cent slab. Additionally, some items currently taxed at 18 per cent may be moved to the 12 per cent slab.”
The changes would reflect in consumer behaviour, he said, especially since items that were originally considered discretionary are now everyday essentials, such as toothpaste and soap that currently fall in the 18 per cent tax slab, and shampoo, which may be taxed as high as 28 per cent.
There is also concern among experts who believe that moving items from the 12 per cent slab to the 5 per cent slab may dent manufacturers’ profits, since their eligibility for input tax credit at 12 per cent may stand to be revoked if moved to 5 per cent.
Some tax experts are speculating that there may be a merger of the 12 per cent and 18 per cent categories to create a 15 per cent tax slab.
Moreover, service intermediaries, who are currently taxed at 18 per cent, even when they provide services to companies abroad, may be removed from the slab.
“The current framework continues to tax intermediary services even when rendered to overseas clients, leading to a double whammy,” said Manoj Mishra, Partner and Tax Controversy Management Leader at Grant Thornton Bharat, adding, “First, it raises costs for Indian service providers, and second, it results in double taxation since Indian importers pay duty on the full value, including what is paid to the intermediary.”
With tax exposure from these service intermediaries amounting to around ₹3,500 crore, the issue assumes significance for the industry, especially when the services bring in foreign exchange.
“Such treatment would not only help reduce the tax burden and compliance uncertainty, but would also be consistent with the approach taken by courts,” opined Mishra.
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