In-Depth Analysis of Circular No 245

In-Depth Analysis of Circular No. 245/02/2025-GST: Key Clarifications & Business Impact

The Goods and Services Tax (GST) framework in India continues to evolve, bringing both opportunities and challenges for businesses. The Circular No. 245/02/2025-GST, issued by the Central Board of Indirect Taxes and Customs (CBIC) on January 28, 2025, aims to clarify multiple GST-related issues based on the recommendations of the 55th GST Council Meeting held on December 21, 2024. This article provides a detailed breakdown of the clarifications, their implications, and the necessary steps businesses must take to remain compliant.

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1. No GST on Penal Charges by Banks & NBFCs

Background:

In August 2023, the Reserve Bank of India (RBI) issued instructions directing banks and Non-Banking Financial Companies (NBFCs) to charge penal charges instead of penal interest on borrowers for non-compliance with loan terms. The intent was to maintain credit discipline without making penal interest an additional source of income for lenders.

Clarification:

• The GST Council clarified that penal charges are not subject to GST as they are not considered a supply of service under GST law.
• Penal charges are imposed to deter non-compliance, similar to liquidated damages, and are not a consideration for tolerating an act.

Impact on Businesses:

• Banks and NBFCs will not be required to pay GST on penal charges, reducing tax compliance burdens.
• Borrowers will benefit from lower costs on penalties, promoting responsible lending and borrowing.

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2. GST Exemption for Payment Aggregators on Small Transactions

Background:

Payment Aggregators (PAs) facilitate online transactions for businesses by processing credit card, debit card, and charge card payments. A key question arose regarding whether GST exemption under Sl. No. 34 of Notification No. 12/2017-CTR applies to PAs when handling transactions of up to ₹2,000.

Clarification:

• GST exemption applies to RBI-regulated Payment Aggregators when they handle transactions of up to ₹2,000.
• This exemption applies only to payment settlement services and not to Payment Gateway (PG) services.

Impact on Businesses:

• Lower transaction costs for businesses handling micro-payments.
• Increased adoption of digital payments, especially in small-value transactions.

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3. Regularization of GST on Skilling & Research Services

A. Skilling Services by Training Partners Approved by NSDC

Background:

Previously, GST exemption was available for skilling services provided by Training Partners approved by the National Skill Development Corporation (NSDC). However, an amendment in October 2024 restricted the exemption only to those accredited under the new NCVET framework.

Clarification:

• The 55th GST Council Meeting decided to reinstate the exemption for NSDC-approved Training Partners.
• Past GST payments for the period 10.10.2024 - 15.01.2025 will be regularized on an ‘as is where is’ basis.

B. Research & Development Services Provided by Government Entities

Background:

The GST Council had exempted research & development (R&D) services provided by government entities, universities, and research associations when funded via grants from government bodies.

Clarification:

• This exemption is effective from 10.10.2024.
• Past GST payments for the period 01.07.2017 - 09.10.2024 will be regularized on an ‘as is where is’ basis.

Impact on Businesses:

• Relief for training institutes and research organizations that faced compliance issues.
• Encouragement for skill development and research funding without additional tax burdens.

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4. GST on Facility Management Services Provided to MCD

Background:

The Municipal Corporation of Delhi (MCD) sought clarification on whether facility management services provided for the upkeep of its headquarters are GST-exempt under Sr. No. 3A of Notification No. 12/2017-CTR.

Clarification:

• The GST Council ruled that GST applies to services such as housekeeping, maintenance, and horticulture for MCD HQ.
• These services do not qualify as municipal functions under Article 243W of the Constitution.

Impact on Businesses:

• Service providers must charge GST when invoicing MCD.
• Increased compliance obligations for municipal offices using facility management services.

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5. Other Key Clarifications

A. DDA is Not a Local Authority

• The Delhi Development Authority (DDA) does not qualify as a ‘local authority’ under GST law.
• Services provided by DDA to businesses will be subject to GST on a forward charge basis.

B. GST on Renting of Commercial Property (Reverse Charge Mechanism - RCM)

• GST on renting of commercial property by unregistered persons to registered composition taxpayers was earlier under RCM.
• This has now been excluded from RCM, and past payments (10.10.2024 - 15.01.2025) are regularized.

C. GST on Incidental Electricity Services

• Services like meter rental, transformer testing, connection shifting, and duplicate bills are now exempt from GST.
• Past payments from 10.10.2024 - 15.01.2025 are regularized.

D. GST on Goethe Institute/Max Mueller Bhawan Services

• GST payments for the Goethe Institute/Max Mueller Bhawan from 01.07.2017 - 31.03.2023 are regularized.

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6. Next Steps for Businesses

✅ Review GST Liability

• Businesses must assess past transactions that are now regularized.
• Claim applicable exemptions to optimize tax compliance.

✅ File GST Returns Accordingly

• Update GST filings based on the new clarifications to avoid unnecessary tax burdens.

✅ Stay Updated with Compliance Changes

• Follow The GST Bulletin for ongoing updates and expert analysis on GST law changes.

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7. Conclusion

The clarifications in Circular No. 245/02/2025-GST provide much-needed certainty for businesses, easing compliance for various sectors. From penal charges exemption to reinstated training service exemptions, the government has taken steps to align GST regulations with industry realities.

📢 Call to Action:

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