GST Council to decide on insurance premium tax; major rate rejig unlikely

The GST Council, in its meeting on Saturday, is likely to decide on reducing tax rates on life and health insurance premiums, but a decision on big-ticket rate rationalisation, including a higher tax on sin goods, may be deferred.

The GoM on GST rate rationalisation had proposed rate rejigs in 148 items in its recommendations, but sources said that consensus is needed to be built on some of the tax changes that the panel has suggested and some more time may be needed for that.

The 55th meeting of the GST Council, chaired by Union Finance Minister Nirmala Sitharaman and comprising state counterparts, is also likely to deliberate on bringing Aviation Turbine Fuel (ATF), a major component for airline industry's operation cost, in the Goods and Services Tax (GST) fold.

The GST rate is also proposed to be cut on food delivery platforms like Swiggy and Zomato, to 5 per cent (without input tax credit), from the current 18 per cent (with ITC).

However, the Fitment Committee (comprising tax officers from the Centre and states) is likely to have proposed a rate hike to 18 per cent on sale of used EVs as well as small petrol and diesel vehicles to 18 per cent from the current 12 per cent.

This hike would bring used and old smaller cars and EVs at par with old larger vehicles, according to sources.

Also, the Group of Ministers (GoM) on GST compensation cess is likely to get a six month extension till June, 2025, to submit its report. The compensation cess regime comes to an end in March, 2026, and the GST Council has set up a panel of ministers, under Union Minister of State for Finance Pankaj Chaudhary, to decide the future course of the cess.

In the GST regime, compensation cess at varied rates is levied on luxury, sin and demerit goods over and above the 28 per cent tax. The proceeds from the cess, which was originally planned for five years after GST roll-out or till June 2022, was used to compensate states for revenue loss incurred by them post the introduction of GST.

One of the major items on the agenda of the Council is to decide the GST rate on health and life insurance. A GoM set up by the Council under Bihar Deputy Chief Minister Samrat Chaudhary, in its meeting in November had agreed on exempting insurance premiums paid for term life insurance policies from GST.

Also, premium paid by senior citizens towards health insurance cover has been proposed to be exempted from the tax.

Besides, GST on premiums paid by individuals, other than senior citizens, for health insurance with coverage of up to Rs 5 lakh is proposed to be exempted.

A final decision of the insurance taxation under GST is likely on Saturday as most states are in favour of lowering taxes on premium.

Another major item before the Council is the GST rate rationalisation panel's report, which has suggested rate tweaks in 148 items.

The GoM on GST rate rationalisation earlier this month decided to submit before the Council its recommendation to hike tax on sin goods, like aerated beverages, cigarettes, tobacco and related products, to 35 per cent from the present 28 per cent.

The four-tier tax slab of 5, 12, 18 and 28 per cent under GST will continue and a new rate of 35 per cent is proposed by the GoM only for sin goods.

The Group of Ministers on rate rationalisation, under Bihar Deputy Chief Minister, also decided to propose rationalising tax rates on apparel. As per the decision, ready-made garments costing up to Rs 1,500 would attract 5 per cent GST, those between Rs 1,500 to Rs 10,000 would attract 18 per cent.

Garments costing above Rs 10,000 would attract 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 also proposed hiking GST on shoes above Rs 15,000/pair from 18 per cent to 28 per cent.

It also proposed hiking the GST rate on wrist watches above Rs 25,000 from 18 per cent to 28 per cent.

"Some of the low hanging fruits in the 148 items that rate rationalisation panel has suggested may be decided in tomorrow's meeting.

But, no major big-ticket rate rationalisation is expected," an official said.

Asked about his views on rate rationalisation and whether he is in favour, Telangana Deputy Chief Minister Mallu Bhatti Vikramarka said: "Taxation system should be more flexible and not be a burden on people. We will present our views tomorrow".

The GoM had proposed reducing GST on packaged drinking water of 20 litre and above to 5 per cent from 18 per cent, and reducing tax rate on bicycles costing less than Rs 10,000 to 5 per cent, from 12 per cent. Also, GST on exercise notebooks would be reduced to 5 per cent from 12 per cent.

In total, the GoM on rate rationalisation has proposed tax rate tweaks in 148 items to the GST council. "The net revenue impact of rate rejigs will be positive," an official had said earlier.

With regard to bringing ATF in GST, the Council is likely to deliberate the timeline and build consensus among states.

When GST was introduced on July 1, 2017, amalgamating over a dozen central and state levies, five commodities -- crude oil, natural gas, petrol, diesel, and aviation turbine fuel (ATF) -- were included in GST law, but it was decided that it would be taxed under GST at a later date.