Introduction
The CBIC, through Circular No. 245/02/2025-GST dated January 28, 2025, has issued clarifications on various aspects of Goods and Services Tax (GST) to ensure uniformity in its application across the country. These clarifications, based on recommendations from the 55th GST Council meeting held on December 21, 2024, address key issues in the taxation of services. Below, we dive into the significant points highlighted in this circular.
1. No GST on Penal Charges Levied by Regulated Entities
The Reserve Bank of India (RBI), via its August 18, 2023, guidelines, directed banks and non-banking financial companies (NBFCs) to impose penal charges instead of penal interest for non-compliance with loan terms. These charges are intended to enforce credit discipline.
The circular clarifies that penal charges levied in compliance with RBI’s guidelines are not considered payments for tolerating an act. Instead, they are deterrents for breach of contract. Therefore, no GST is applicable on such penal charges.
2. GST Exemption for Payment Aggregators on Small Transactions
Payment Aggregators (PAs), which facilitate transactions for e-commerce and merchants, raised concerns about the GST exemption under Sl. No. 34 of Notification No. 12/2017-CTR for transactions under ₹2,000.
The circular confirms that RBI-regulated PAs qualify as “acquiring banks” when they settle payments with merchants. Thus, they are entitled to GST exemption for small transactions. However, this exemption applies only to payment settlement functions and excludes services by Payment Gateways (PGs).
3. Regularization of GST on R&D Services Funded by Government Grants
Research and development services provided by Government Entities and notified research bodies are exempt from GST when funded by government grants, effective October 10, 2024 (Notification No. 08/2024-CTR).
For the period from July 1, 2017, to October 9, 2024, GST on such services has been regularized on an “as is where is” basis, resolving interpretational issues.
4. GST Exemption Restored for Skilling Services by NSDC Partners
The circular reinstates the GST exemption for skilling services provided by Training Partners approved by the National Skill Development Corporation (NSDC). This exemption, withdrawn earlier, has been restored effective January 16, 2025 (Notification No. 06/2025-CTR).
Additionally, GST for such services during the interim period (October 10, 2024, to January 15, 2025) has been regularized.
5. GST on Facility Management Services to MCD Headquarters
Facility management services provided to the Municipal Corporation of Delhi (MCD) Headquarters, including housekeeping and maintenance, were examined for GST exemption.
The circular clarifies that these services do not relate to functions listed under Article 243W of the Constitution. Hence, GST is applicable at the standard rates.
6. Clarification on Delhi Development Authority’s (DDA) Status as a Local Authority
The DDA sought clarification on whether it qualifies as a “local authority” under GST law.
The circular states that the DDA does not meet the criteria under Section 2(69) of the CGST Act, 2017, as it is not a self-governing elected body with control over municipal or local funds. Consequently, DDA cannot be treated as a local authority for GST purposes.
7. GST on Renting of Commercial Property under RCM for Composition Taxpayers
Renting of commercial property by unregistered persons to registered persons was brought under Reverse Charge Mechanism (RCM) from October 10, 2024 (Notification No. 09/2024-CTR).
However, composition taxpayers were excluded from this provision effective January 16, 2025 (Notification No. 07/2025-CTR). GST during the interim period has been regularized.
8. Regularization of GST on Ancillary Electricity Services
Services ancillary to electricity transmission and distribution—such as renting meters, releasing connections, and issuing duplicate bills—are now exempt under Notification No. 08/2024-CTR.
For the period from October 10, 2024, to January 15, 2025, GST on these services has been regularized.
9. Regularization of GST for Goethe Institutes/Max Mueller Bhawans
Goethe Institutes/Max Mueller Bhawans, providing linguistic and cultural training, did not collect or remit GST between July 1, 2017, and March 31, 2023, due to a mistaken belief in their exemption.
The circular regularizes GST payments for this period on an “as is where is” basis, resolving past ambiguities.
Conclusion
The clarifications in Circular No. 245/02/2025-GST aim to address industry concerns and streamline GST compliance. Stakeholders are advised to review these changes to ensure adherence to the updated rules. For further queries, businesses can reach out to the relevant tax authorities or consult their GST advisors.
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