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Informist, Wednesday, Dec. 18, 2024

 

NEW DELHI – The GST Council's 55th meeting on Saturday in the picturesque city of Jaisalmer is expected to discuss a host of issues including reduction in goods and services tax rates on health and life insurance premiums, rationalisation of GST rates on a plethora of items and the blueprint on the future of the GST compensation cess, which is due to end in March 2026.

 

The council has its task cut out and has to ensure that rates are reduced while ensuring that there is no revenue loss to either the states or the Centre. The task is more complex now with the GST collections plateauing.

 

 

INSURANCE PREMIUM

After discussing lowering the 18% GST on health and life insurance premiums in four earlier meetings, the 55th meeting may finally decide on it on Saturday. If the council approves the report by the Group of Ministers, the 18% GST levied on the premium on life insurance policies and the premium on health insurance products providing coverage of up to INR 500,000 may be exempted. The council may also decide to lower the GST on the premium for health insurance coverage above INR 500,000 to 12% or 5%. 

 

At its last meeting in September, the GST Council set up a Group of Ministers, headed by Bihar Deputy Chief Minister Samrat Chaudhary, to look into the possibility of cutting the tax rate on life and health insurance premiums following demands from various quarters. 

 

This issue was already simmering and what added fuel to the fire was a leaked letter from Road Transport and Highways Minister Nitin Gadkari to Finance Minister Nirmala Sitharaman seeking withdrawal of GST on insurance premiums. Gadkari wrote that the levy amounts to taxing the uncertainties of life and restricts the growth of the sector. The matter had in fact led to several rounds of protests and debates during the Monsoon Session of Parliament.

 

RATE RATIONALISATION

The Group of Ministers on GST rates has discussed a host of rate rejigs--on almost 150 items--which will likely help the government to raise an additional INR 220 billion per year. The proposed changes aim to raise taxes on luxury and sin goods, on the one hand, and provide relief on essential items, on the other.

 

If the council approves the proposals of the panel, also headed by Chaudhary, GST on packaged water above 20 litres may go down to 5% from 18%, GST on bicycles costing less than INR 10,000 may become 5% from 12% and GST on exercise notebooks may become 5% from 12%. Besides these, rates on readymade garments may be rejigged to 5% for garments costing up to INR 1,500, 18% for those between INR 1,500-INR 10,000 and 28% for those above INR 10,000. 

 

The six-member Group of Ministers has been asked to recommend trimming the list of items exempt from GST, reassessing tax rates, and correcting inverted duty structures. To net out the negative impact of lowering GST, the council may also increase the GST on watches priced above INR 25,000 to 28% from 18% and on shoes costing over INR 15,000 to 28% GST from the current 18%.

 

COMPENSATION CESS 

Beyond the routine rate rationalisation exercise, the council may also discuss the proposal to hike the GST rate of 28% on sin goods like cigarettes, tobacco and related products, and aerated beverages to a new rate of 35%. The four-tier tax slab of 5%, 12%, 18% and 28% will continue and a new rate of 35% may be introduced for a niche category of items that earlier attracted a cess in addition to the GST rate.

 

The GST cess, which was introduced to compensate states for revenue losses in the initial years of the GST regime, is due to end in March 2026. The cess on certain luxury and sin items such as tobacco items, motor vehicles, expensive motorcycles, caffeinated beverages and aerated drinks was introduced in 2017 to compensate states for the potential revenue losses in the first five years of the new GST regime.

 

Though the collection of GST compensation cess was to be discontinued in June 2022, it was extended till March 2026 to repay the loans taken by the Centre to compensate for the fall in revenue collections during the COVID-19 pandemic.

The Group of Ministers on compensation cess, headed by Minister of State for Finance Pankaj Chaudhary, is likely to be given a six-month extension to finalise its report. The group was originally mandated to submit its report by Dec. 31. In the first meeting of a Group of Ministers on GST compensation cess in October, states recommended merging the cess with GST rates once the compensation cess regime ends in March 2026, with the caveat that once it is decided to merge the cess with taxes, no new goods should be added to the list of luxury, sin and demerit goods.

 

OTHER ITEMS

Other items that the council may discuss on Saturday include raising the GST rate on old and used electric vehicles and smaller petrol and diesel vehicles to 18% from 12%, based on a recommendation by the fitment committee. Currently, new EVs are charged a concessional GST rate of 5% and used EVs are charged 12%. The GST on used vehicles is applied only to the supplier's margin – the difference between the selling price and the purchase price or the depreciated value of the vehicle.

 

The GST Council may also lower tax on food delivery charges by e-commerce players such as Zomato and Swiggy to 5% from 18%. The tax cut, which may retrospectively take effect from Jan. 1, 2022, as per the fitment committee's suggestion, would disallow delivery platforms from claiming input tax credit. Lowering the GST on medical equipment, drugs and items needed for cancer treatment may also be decided on Saturday.  End

 

Reported by Priyasmita Dutta 

Edited by Saji George Titus

 

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