December 21, 2024
The Goods and Services Tax (GST) Council is set to meet on Saturday, December 21, 2024, to deliberate on significant tax changes, including reductions on life and health insurance premiums. This 55th Council meeting, chaired by Union Finance Minister Nirmala Sitharaman, will also address tax hikes on luxury items such as high-end wristwatches, shoes, and apparel. Additionally, a new 35% tax slab for sin goods is on the agenda, alongside the possibility of bringing Aviation Turbine Fuel (ATF) under the GST framework.
GST Council: Proposed Tax Revisions on Insurance and Delivery Platforms
Among the critical discussions, the Council will consider reducing the GST rate on life and health insurance premiums. Notably, term life insurance policies and health insurance premiums paid by senior citizens may be exempted from GST. For non-senior citizens, health insurance premiums for policies covering up to ₹5 lakh could also see tax exemptions. However, policies exceeding ₹5 lakh coverage will continue to attract an 18% tax.
Another anticipated change includes a reduction in the GST rate for food delivery platforms such as Swiggy and Zomato. The current tax of 18% (with input tax credit) may be reduced to 5% (without input tax credit), potentially offering relief to consumers.
Adjustments to GST Rates on Luxury and Sin Goods
The Fitment Committee, comprising tax officials from the Centre and states, has recommended raising GST on used electric vehicles (EVs) and small petrol and diesel vehicles from 12% to 18%. This increase aligns their taxation with that of larger used vehicles.
Luxury goods such as wristwatches priced above ₹25,000 and shoes costing more than ₹15,000 per pair may face an increased GST rate of 28%, up from the current 18%. Ready-made garments could see a new three-tier taxation structure, with 5% GST for items costing up to ₹1,500, 18% for those between ₹1,500 and ₹10,000, and 28% for garments priced above ₹10,000.
Sin goods, including aerated beverages, cigarettes, and tobacco products, might be moved to a higher 35% tax slab. This recommendation by the Group of Ministers (GoM) on GST rate rationalization is aimed at curbing consumption while boosting revenue.
Changes for Essential Items and New Proposals
Essential items could benefit from reduced GST rates. Proposals include reducing the tax on packaged drinking water (20 liters or more) and bicycles costing less than ₹10,000 to 5% from the existing 18% and 12%, respectively. Exercise notebooks may also see a tax cut from 12% to 5%.
Aviation Turbine Fuel and GST Inclusion
The Council will explore the inclusion of ATF under GST, a move long demanded by the aviation industry. This inclusion would standardize taxation across states and allow companies to claim input tax credits, potentially reducing operational costs.
Since GST’s implementation on July 1, 2017, petroleum products, including crude oil, natural gas, petrol, diesel, and ATF, were kept outside the GST framework. These commodities are currently taxed separately by the central government through excise duties and by states via value-added tax (VAT). The Council will discuss a roadmap for transitioning ATF into GST, aiming for greater uniformity and tax efficiency.
Extension of GST Compensation Cess
The GoM on GST compensation cess, chaired by Union Minister of State for Finance Pankaj Chaudhary, may seek a six-month extension, extending the deadline to June 2025. The compensation cess regime, set to end in March 2026, was designed to offset state revenue losses following GST implementation. The cess is levied on luxury and demerit goods, including cars and tobacco products, in addition to the highest 28% tax slab.
Revenue Impact
The GST rate rationalization panel has suggested rate changes in 148 items, aiming for a positive net revenue impact. Essential items would remain in the lower tax brackets, while luxury and sin goods would bear the highest rates. The Council’s decisions are expected to balance revenue generation with consumer affordability.
As the GST Council convenes, the outcomes will likely shape consumer costs, industry operations, and government revenues. The proposed changes reflect a strategy to refine the tax structure while addressing diverse economic priorities.
The decisions taken during this meeting will be closely watched for their impact on businesses, consumers, and state economies. Whether through lowering insurance premiums or adjusting tax rates on goods, the Council’s resolutions aim to align the GST regime with evolving economic dynamics.
