The CBIC vide issuing Circular No. 245/02/2025-GST dated 28.01.2025, has provided various clarifications on issues as recommended by the GST Council in its 55th meeting held on 21stDecember 2024.
These are as under:
A. GST applicability on penal charges: Concerns were raised on whether penal charges should be considered as “payment/consideration for tolerating an act or situation,” which would make them taxable under GST. Circular No. 178/10/2022-GST dated 03.08.2022, had earlier clarified that Payments such as liquidated damages are not a consideration for tolerating an act but are meant to deter breach or non-performance. Contracts are executed for performance, not breach, and related penalties are incidental events. Penal charges levied by REs under the RBI directive are similar to liquidated damages or penalties for breach of a contract. These charges are not payment for any service or act but are recovered as deterrents for non-compliance with loan terms.
Now, it is clarified that no GST is payable on penal charges levied by REs in compliance with RBI directions.
B. Applicability of GST exemption to Payment Aggregators (PAs) under Sl. No. 34 of notification No. 12/2017-CTR dated 28.06.2017:
Definition and Role of Payment Aggregators (PAs):
- Payment Aggregators (PAs) are entities facilitating e-commerce platforms and merchants to accept various payment methods without requiring their own integration systems.
- PAs receive payments from customers, pool them, and transfer the funds to merchants within a time period as specified by RBI regulations.
Based on the recommendations, it is clarified:
- RBI-regulated Payment Aggregators (PAs) are entitled to the GST exemption for settlement of transactions up to ₹2,000.
- This exemption is limited to payment settlement functions that involve the handling of money.
- Payment Gateway (PG) services are not covered under this exemption.
C. Regularization of GST on Research and Development Services Provided by Government Entities Against Grants:
Earlier, the Council in 54th Council Meeting, exempted research and development (R&D) services provided by Government Entities, research associations, universities, colleges, or other institutions against consideration in the form of grants. This exemption came into effect from 10.10.2024, as per Notification No. 08/2024-CT(Rate) dated 08.10.2024.
Regularization for the Past Period (01.07.2017 to 09.10.2024) – To address past compliance concerns, the GST Council, in its 55th meeting on 21.12.2024, recommended regularizing the payment of GST on such transactions for the period 01.07.2017 to 09.10.2024, on an ‘as is where is’ basis. Accordingly, No additional liability will be imposed on entities for the said past period if they have already paid GST on such transactions. Entities that did not pay GST during this period are not required to retrospectively pay GST, effectively regularizing their past compliance.
D. Regularization of GST on Skilling Services Provided by Training Partners Approved by NSDC:
GST Council in its 55th Meeting, recommended reinstating the exemption for skilling services provided by NSDC-approved Training Partners. The exemption was restored by amending Notification No. 12/2017-CTR vide Notification No. 06/2025-CT(Rate) dated 16.01.2025, effective from 16.01.2025.
Regularization for Interim Period (10.10.2024 to 15.01.2025) – For the period 10.10.2024 to 15.01.2025, during which the exemption was not available, the GST Council recommended regularizing the payment of GST on these services on an ‘as is where is’ basis. This means no additional GST liability will arise for this period if GST was not paid, and GST already paid will stand regularized.
E. Applicability of GST on Facility Management Services Provided to MCD Headquarters
As per the 55th GST Council meeting recommendations:
- GST is applicable on facility management services provided to MCD Headquarters for the upkeep of its office building.
- The applicable GST rate will depend on the nature of the specific service provided.
Thus, The facility management services provided to the MCD Headquarters for office upkeep are taxable under GST and do not qualify for exemption under Sr. No. 3A of Notification No. 12/2017-CTR.
F. DDA is a Local Authority as per section 2(69) of the CGST Act, 2017?
Definition of Local Authority under Section 2(69)
The term ‘local authority’ under Section 2(69) includes:
- A Municipal Committee, Zilla Parishad, District Board, or similar self-governing body.
- Any other authority legally entitled to or entrusted by the Central or State Government with the control or management of a municipal or local fund.
Based on the analysis and as recommended by the 55th GST Council, it is clarified that DDA does not meet the requirements to be classified as a ‘local authority’ under Section 2(69) of the CGST Act, 2017.
The Delhi Development Authority (DDA) cannot be treated as a local authority under the CGST Act, 2017. Consequently, services provided by DDA are not subject to GST under the Reverse Charge Mechanism (RCM) applicable to local authorities.
G. Regularization of GST Payment on Certain Support Services Provided by Electricity Transmission or Distribution Utilities:
The GST Council in 55th Meeting, aligning the entries at Sr. No. 25 (existing exemption for transmission/distribution of electricity) and Sr. No. 25A (newly added exemption for incidental services). This alignment was implemented through Notification No. 6/2025-CTR dated 16.01.2025, effective from 16.01.2025.
It is clarified that:
- The payment of GST on incidental or ancillary services (as mentioned in Para 9.1) provided by electricity transmission or distribution utilities for the period 10.10.2024 to 15.01.2025 is regularized on an ‘as is where is’ basis.
This measure ensures compliance while resolving issues related to GST applicability for the interim period.
H. Regularizing the Payment of GST on Services Provided by Goethe Institute/Max Mueller Bhawans
Goethe Institute/Max Mueller Bhawan provides linguistic and cultural training to young Indians, especially those preparing for their stay in Germany. Until 1st April 2023, these institutes neither collected GST from their students nor paid GST to the government, as they operated under the bona fide belief that their activities were exempt from GST.
As per the 55th GST Council recommendation, it is clarified that:
- The payment of GST on services supplied by Goethe Institute/Max Mueller Bhawans is regularized for the period 01.07.2017 to 31.03.2023 on an ‘as is where is’ basis.
I. Regularizing Payment of GST on Reverse Charge (RCM) Basis for Renting of Commercial Property by Unregistered Persons to Registered Persons under Composition Levy
The GST Council in 55th Meeting, has recommended that composition taxpayers be excluded from the scope of Sr. No. 5AB in Notification No. 13/2017-CTR. This exclusion was implemented via Notification No. 07/2025-CT(Rate) dated 16.01.2025, effective from the same date.
Now, it is clarified that the payment of GST on RCM basis for renting of commercial property by an unregistered person to registered persons under composition levy is regularized for the period 10.10.2024 to 15.01.2025 on an ‘as is where is’ basis.
The Complete Circular can be accessed at https://taxo.online/wp-content/uploads/2025/01/cir-245022025-cgst.pdf
