India’s Goods and Services Tax (GST) Council is set to convene on Monday to address a range of tax-related matters, with a particular focus on issues impacting foreign airlines, software exporters, and research institutions. This meeting follows a period of tension earlier this year when Indian tax authorities levied a collective INR 10,000 crore on leading global airlines, including Emirates, Lufthansa, and British Airways. This action prompted the International Air Transport Association (IATA) to express concern that India’s complex tax regulations could deter foreign operators from conducting business within the country.
One of the primary items on the Council’s agenda is a proposal to exempt overseas headquartered airlines from GST on reimbursement of expenses incurred by their Indian branch offices. The IATA had previously criticized these tax notices as flawed and out of line with global aviation standards. The Council is also expected to provide clarity on the application of GST to helicopter services used for religious purposes, potentially easing the tax burden on service providers. Currently, these services are subject to a concessional 5% GST, but without credit for taxes paid on goods and services used in the service. The Council may consider making this tax regime more favorable.
Another significant issue to be addressed is the potential for tax relief for private sector organizations conducting core research and development activities with no current commercial applications. While such activities undertaken by government agencies for scientific advancement are currently exempt from GST, questions have been raised regarding the taxability of similar projects carried out by private entities. The Council is expected to clarify that both public and private research institutions will be treated equally in this regard.
The Council’s meeting also holds significant implications for the insurance sector. A panel of central and state officials has been unable to reach consensus on the extent of a rate cut for life and health insurance schemes, which are currently subject to 18% GST. The Council will consider suggestions from state finance ministers on this issue, with the ultimate decision on the reduction – whether to bring the rate down to 12% or 5% or to exempt premiums from GST altogether – hinging on the revenue states are willing to forgo. Earlier, Transport Minister Nitin Gadkari had urged Finance Minister Nirmala Sitharaman to withdraw the 18% GST on life and medical insurance premiums.
Experts believe that reducing the tax rate on health insurance services would not only be a popular move but also a practical step to address the high cost of essential services. However, they emphasize that any reduction must be implemented before the sunset clause of the anti-profiteering provisions to ensure that policyholders benefit from the rate reduction. In addition, the expected clarification regarding transactions between airline branch offices and their head offices is seen as crucial for providing tax certainty and minimizing frivolous litigation.
The Council is also scheduled to address the taxability of payments made by software exporters to their overseas branches. This issue has gained prominence following a tax notice issued to Infosys by the Directorate General of GST Intelligence (DGGI) regarding the reimbursement of expenses by its Indian head office to its overseas branches. The Council will review the status of a study on GST rate rationalization, but a final decision on this matter is not expected immediately due to the complexity of the issue.
Overall, Monday’s GST Council meeting is expected to provide much-needed clarity and resolution on several critical tax matters impacting various sectors of the Indian economy, including airlines, software exporters, research institutions, and the insurance industry. The Council’s decisions will shape the future of these sectors and impact the flow of investments and business activities within India.
