The GST Council, in its meeting on Saturday, is expected to decide on reducing tax rates on life and health insurance premiums while increasing them on high-end wristwatches, shoes, and apparel. It will also consider a separate 35 per cent tax slab for sin goods.
The 55th meeting of the GST Council, chaired by Union Finance Minister Nirmala Sitharaman and comprising state counterparts, is likely to discuss a rate rejig for around 148 items. Additionally, the Council will deliberate on bringing Aviation Turbine Fuel (ATF), a major component of the airline industry's operational costs, under the Goods and Services Tax (GST) regime.
A proposal to reduce the GST rate on food delivery platforms like Swiggy and Zomato to 5 per cent (without input tax credit), from the current 18 per cent (with ITC), is also on the agenda.
However, the Fitment Committee (comprising tax officers from the Centre and states) is expected to propose a rate hike to 18 per cent on the sale of used electric vehicles (EVs) and small petrol and diesel vehicles, up from the current 12 per cent. This change would align the taxation of used smaller cars and EVs with that of old larger vehicles, according to sources.
The Group of Ministers (GoM) on GST compensation cess is likely to receive a six-month extension until June 2025 to submit their report. The compensation cess regime, which is due to end in March 2026, was introduced to compensate states for revenue losses incurred after the introduction of GST.
In the GST framework, compensation cess is levied on luxury, sin, and demerit goods over and above the 28 per cent tax. The proceeds from the cess, initially planned to last five years after the roll-out of GST or until June 2022, have been used to compensate states for the revenue loss.
One of the major items on the Council's agenda is the GST rate on health and life insurance. A GoM set up by the Council under Bihar Deputy Chief Minister Samrat Chaudhary had agreed in November to exempt GST on premiums paid for term life insurance policies.
Additionally, premiums paid by senior citizens for health insurance are proposed to be exempt from tax. Premiums paid by individuals (other than senior citizens) for health insurance with coverage up to Rs 5 lakh are also proposed to be exempt.
However, 18 per cent GST will continue on premiums paid for policies with health insurance coverage above Rs 5 lakh.
Another key issue is the report from the GST rate rationalisation panel, which has recommended rate tweaks for 148 items. The GoM on GST rate rationalisation earlier this month proposed increasing the tax on sin goods, such as aerated beverages, cigarettes, tobacco, and related products, to 35 per cent from the current 28 per cent.
The four-tier tax slab of 5, 12, 18, and 28 per cent under GST will remain, with a new 35 per cent rate proposed for sin goods.
The GoM also recommended rationalising tax rates on apparel, with ready-made garments costing up to Rs 1,500 attracting 5 per cent GST, those priced between Rs 1,500 and Rs 10,000 attracting 18 per cent, and garments above Rs 10,000 attracting 28 per cent tax. Currently, garments costing up to Rs 1,000 attract 5 per cent GST, while those above that attract 12 per cent.
The GoM has also proposed increasing the GST on shoes above Rs 15,000 per pair from 18 per cent to 28 per cent and raising the tax on wristwatches costing above Rs 25,000 from 18 per cent to 28 per cent, as discussed in the previous meeting on 19 October.
Additionally, the GoM had proposed reducing the GST on packaged drinking water of 20 litres or more to 5 per cent from 18 per cent, and lowering the tax rate on bicycles costing less than Rs 10,000 to 5 per cent from 12 per cent. The GST on exercise notebooks is also proposed to be reduced to 5 per cent from 12 per cent.
In total, the GoM on rate rationalisation has proposed changes to tax rates on 148 items to the GST Council. "The net revenue impact of these rate rejigs will be positive," an official had said earlier.
Under GST, essential items are either exempted or taxed at the lowest slab, while luxury and demerit items attract the highest slab. Luxury goods such as cars and washing machines, along with demerit goods like aerated drinks and tobacco products, attract a cess in addition to the highest 28 per cent slab.
Regarding the inclusion of ATF in GST, the Council is expected to discuss the timeline and build consensus among states.
When GST was introduced on 1 July 2017, amalgamating more than a dozen central and state levies, five commodities—crude oil, natural gas, petrol, diesel, and aviation turbine fuel (ATF)—were excluded from the GST law. It was agreed that they would be brought under GST at a later date.
As a result, the central government continued to levy excise duty on these items, while state governments charged VAT. These taxes, particularly excise duty, have been periodically raised.
Including oil products in GST would not only allow companies to offset taxes paid on inputs but also ensure uniform taxation of fuels across the country. The inclusion of ATF in GST has been a key demand from aviation companies, who argue that it would lower costs, as they would be able to claim input tax credit (ITC).
Follow us
