Circular No. 245/02/2025-GST: Clarifications for GST on Certain Services

The 55th GST Council Meeting held on December 21, 2024, at Jaisalmer, provided several key clarifications and amendments to the applicability of GST on specific services. These updates aim to resolve ambiguities, regularize payments, and align GST practices with the evolving regulatory framework, Circular No. 245/02/2025-GST

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1. GST on Penal Charges Levied by Regulated Entities (REs)

• Background:
  As per RBI instructions dated August 18, 2023, Regulated Entities (REs) such as banks and NBFCs must levy penal charges instead of penal interest for non-compliance with loan terms. Effective January 1, 2024, these charges aim to promote credit discipline.
• Clarification:
  Penal charges levied for breach of loan terms are not subject to GST. These are categorized as amounts for preventing breach of contract, not as consideration for tolerating an act.
  • Reference: Circular No. 178/10/2022-GST clarified that liquidated damages for contract breaches are not taxable.
  • Applicability: GST is not payable on such penal charges levied in compliance with RBI directions.

2. GST Exemption for Payment Aggregators (PAs)

• Scope of Exemption:
  GST exemption under Sl. No. 34 of Notification No. 12/2017-CTR is extended to RBI-regulated Payment Aggregators (PAs) involved in payment settlements of up to Rs. 2,000 per transaction via credit/debit cards.
• Key Points:
  • PAs, as per RBI guidelines dated March 17, 2020, receive payments in an escrow account and settle them with merchants.
  • PAs qualify as “acquiring banks” for GST exemption purposes.
  • Limitation: This exemption is restricted to payment settlement functions and does not cover Payment Gateway services.

3. Regularization of GST on R&D Services by Government Entities

• Exemption Effective Date:
  From October 10, 2024, research and development services provided by Government Entities, universities, or research associations, funded by grants, are GST-exempt (Notification No. 08/2024-CT(Rate)).
• Regularization:
  GST paid on such services for the period July 1, 2017, to October 9, 2024, is regularized on an “as-is-where-is” basis.

4. Restoration of GST Exemption for Skilling Services by NSDC Training Partners

• Background:
  GST exemption for NSDC-approved Training Partners was withdrawn on October 10, 2024, and limited to NCVET-accredited Training Bodies.
• Reinstatement:
  The exemption has been restored effective January 16, 2025, via Notification No. 06/2025-CT(Rate).
• Regularization:
  GST paid for the period October 10, 2024, to January 15, 2025, is regularized.

5. GST Applicability on Facility Management Services for MCD HQ

• Clarification:
  Facility management services like housekeeping, civil maintenance, and horticulture received by the Municipal Corporation of Delhi (MCD) HQ are taxable, as they are not linked to functions under Article 243W of the Constitution.

6. DDA Not Classified as a Local Authority

• Clarification:
  The Delhi Development Authority (DDA) does not qualify as a “local authority” under Section 2(69) of the CGST Act, 2017. Hence, services supplied by DDA are taxable under regular GST provisions.

7. Renting of Commercial Property Under RCM for Composition Taxpayers

• Amendment:
  Taxpayers under composition levy are excluded from RCM provisions on renting commercial property by unregistered persons (Notification No. 07/2025-CTR).
• Regularization:
  GST paid for the period October 10, 2024, to January 15, 2025, is regularized.

8. GST on Incidental Services by Electricity Utilities

• Exemption Update:
  Services like renting metering equipment, testing transformers, and issuing duplicate bills by electricity utilities are exempt under Notification No. 06/2025-CTR.
• Regularization:
  GST paid for the period October 10, 2024, to January 15, 2025, is regularized.

9. GST on Services by Goethe Institutes/Max Mueller Bhawans

• Background:
  Linguistic and cultural training services provided by Goethe Institutes were not subject to GST until April 1, 2023.
• Regularization:
  GST for the period July 1, 2017, to March 31, 2023, is regularized.

Summary Table of Key Clarifications and Regularizations

Conclusion

The clarifications and regularizations issued by the GST Council aim to enhance compliance, resolve ambiguities, and address sector-specific concerns. Taxpayers are advised to align their practices with these updated norms and consult professionals for further assistance.

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