GST Circulars post 53rd GST Council meeting-Analysis-Part 3!

On June 22, 2024, the 53rd GST Council meeting was held in Delhi, with Union Minister for Finance and Corporate Affairs, Smt. Nirmala Sitharaman, presiding. The council proposed various adjustments to GST rates, introduced trade facilitation measures, and sought to streamline GST compliance. Many circulars are issued after this meeting by CBIC. Let’s understand them one by one.

Highlights of 53rd GST Council Meeting- Part I

Highlights of 53rd GST Council Meeting- Part II

Highlights of 53rd GST Council Meeting- Part III

GST Circulars post 53rd GST Council meeting- Analysis Part 1

GST Circulars post 53rd GST Council meeting- Analysis Part 2

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 Circular No. 212/6/2024-GST dated 26^th June, 2024

Section 15 of the CGST Act, 2017 deals with the Value of supply. It’s Sub-section 3 states that the value of the supply shall not include any discount which is given–– 

(a) Before or at the time of the supply if such discount has been duly recorded in the invoice issued in respect of such supply; and 

(b) After the supply has been affected, if— 

(i) Such discount is established in terms of an agreement entered into at or before the time of such supply and specifically linked to relevant invoices; and 

(ii) Input tax credit as is attributable to the discount on the basis of the document issued by the supplier has been reversed by the recipient of the supply.

Representations were received from the trade and the field formations mentioning that there is presently no facility available to the supplier as well as the tax officers on the common portal to verify whether the input tax credit attributable to the said discount has been reversed as per section 15(3)(b)(ii) by the recipient or not.

CBIC has clarified in this circular that as of now, there is no system functionality/ facility presently available on the common portal to enable the supplier or the tax officer to verify the compliance of the said condition of proportionate reversal of input tax credit by the recipient. Till the time a functionality/ facility is made available on the common portal to enable the suppliers as well as the tax officers to verify whether the input tax credit attributable to such discounts offered through tax credit notes has been reversed by the recipient or not, the supplier may procure a certificate from the recipient of supply, issued by the Chartered Accountant (CA) or the Cost Accountant (CMA), certifying that the recipient has made the required proportionate reversal of input tax credit at his end in respect of such credit note issued by the supplier.

The said CA/CMA certificate may include details such as the details of the credit notes, the details of the relevant invoice number against which the said credit note has been issued, the amount of ITC reversal in respect of each of the said credit notes along with the details of the FORM GST DRC-03/ return / any other relevant document through which such reversal of ITC has been made by the recipient.

Such certificate issued by CA or CMA shall contain UDIN.

In cases, where the amount of tax (CGST+SGST+IGST and including compensation cess, if any) involved in the discount given by the supplier to a recipient through tax credit notes in a Financial Year is not exceeding Rs 5,00,000, then instead of CA/CMA certificate, the said supplier may procure an undertaking/ certificate from the said recipient that the said input tax credit attributable to such discount has been reversed by him.

Circular No. 213/07/2024-GST dated 26^th June, 2024

This circular provides clarification on the taxability of ESOP/ESPP/RSU provided by a company to its employees through its overseas holding company. 

Some Indian companies provide the option to their employees for allotment of securities/shares of their foreign holding company as part of the compensation package as per terms of the contract of employment. In such cases, on exercising the option by the employees of the Indian subsidiary company, the securities/shares of foreign holding company are allotted directly by the holding company to the concerned employees of Indian subsidiary company, and the cost of such securities/shares is generally reimbursed by the subsidiary company to the holding company.

Doubts were being raised regarding the taxability of such a transaction under GST, i.e. whether such transfer of shares/ securities by the foreign holding company directly to the employees of the Indian subsidiary company and subsequent reimbursement of the cost of such shares/ securities by the Indian subsidiary company to the foreign holding company can be considered as import of financial services by the Indian subsidiary company from the foreign holding company and whether the same can be considered as liable to GST in the hands of Indian subsidiary company on reverse charge basis.

It is clarified in this circular that no supply of service appears to be taking place between the foreign holding company and the domestic subsidiary company where the foreign holding company issues ESOP/ESPP/RSU to the employees of a domestic subsidiary company, and the domestic subsidiary company reimburses the cost of such securities/shares to the foreign holding company on cost-to-cost basis. 

However, in cases where an additional amount over and above the cost of securities/shares is charged by the foreign holding company from the domestic subsidiary company, by whatever name called, GST would be leviable on such additional amount charged as consideration for the supply of services of facilitating/ arranging the transaction in securities/ shares by the foreign holding company to the domestic subsidiary company. The GST shall be payable by the domestic subsidiary company on a reverse charge basis in such a case on the said import of services.

Circular No. 214/8/2024-GST dated 26^th June, 2024

This circular provides clarification on the requirement of reversal of input tax credit in respect of the portion of the premium for life insurance policies which is not included in taxable value.

The question was whether the amount of insurance premium, which is not included in the taxable value as per Rule 32(4) of CGST Rules applicable for the life insurance business, shall be treated as pertaining to a non-taxable supply/ exempt supply for the purpose of reversal of Input tax credit as per section 17(1) of CGST Act read with Rule 42 & 43 of CGST Rules.

Just because some amount of consideration is not included in the value of taxable supply as per the provisions of the statute, it cannot be said that the said portion of consideration becomes attributable to a non-taxable or exempt supply. Therefore, it is clarified that the amount of the premium for taxable life insurance policies, which is not included in the taxable value as determined under rule 32(4) of CGST Rules, cannot be considered as a non-taxable or exempt supply and therefore, there is no requirement of reversal of input tax credit as per provisions of Rule 42 or rule 43 of CGST Rules, read with sub-section (1) and sub-section (2) of Section 17 of CGST Act, in respect of the said amount. 

Conclusion

The GST circulars issued after the 53rd GST Council meeting offer significant clarifications that will enhance compliance and operational efficiency for businesses. Circular No. 212/6/2024-GST addresses the process for verifying ITC reversals linked to discounts, providing a pragmatic solution via CA/CMA certifications until an automated system is in place. Circular No. 213/07/2024-GST clarifies the taxability of employee stock options provided by foreign holding companies, establishing that GST is only applicable on additional charges above the cost of securities. Lastly, Circular No. 214/8/2024-GST resolves ambiguities around input tax credit reversal for life insurance premiums, affirming that premiums excluded from taxable value do not necessitate ITC reversal.

These clarifications collectively aim to reduce compliance burdens, prevent disputes, and promote a more transparent GST regime. Businesses must stay updated with these changes to fully leverage their benefits and ensure seamless GST compliance.

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