GST rate rationalisation recommendations may yield Rs 22,000 cr surplus

The GST Council's Group of Ministers (GoM) on rate rationalisation is expected to recommend a reduction in GST rates for packaged drinking water of 20 litres and above, exercise books, and bicycles, while increasing rates for high-end shoes and watches. This move could potentially lead to an additional revenue surplus of Rs 22,000 crore, according to sources familiar with the matter.

"GoM on rate rationalisation discussed several proposals and is considering reworking rates by reducing rates on common-use items and hiking rates on items used less or on luxury and sin goods," said the source.

The second meeting on rate rationalisation under the convenership of Bihar Deputy Chief Minister Samrat Choudhary took place in New Delhi on Saturday.

 

"The GoM on GST rate rationalisation on Saturday decided to lower tax rates on 20 litres and above packaged drinking water bottles from the current 18 per cent to 5 per cent, bicycles priced below Rs 10,000 to 5 per cent from 12 per cent, and exercise notebooks to 5 per cent from 12 per cent,” added the source.

"GoM is likely to hike rates on items such as high-end wristwatches (Rs 25,000 and above) and shoes (Rs 15,000 and above) from 18 per cent to 28 per cent," another source said.

The GoM members include West Bengal Finance Minister Chandrima Bhattacharya, Uttar Pradesh Finance Minister Suresh Kumar Khanna, Rajasthan Health Services Minister Gajendra Singh Khimsar, and Kerala Finance Minister K N Balagopal.

The proposed rate adjustments are anticipated to generate a revenue surplus of Rs 22,000 crore, which could enhance GST collections and offset potential losses expected from the planned relaxations in the life and health insurance sectors, according to sources.

Currently, the GST operates under a four-tier structure with slabs of 5 per cent, 12 per cent, 18 per cent, and 28 per cent. Essential items are either exempt or taxed at the lowest slab, while luxury and demerit goods are subject to the highest slab. Luxury and sin goods also incur an additional cess on top of the 28 per cent rate.

At present, the average GST rate is around 12.2 per cent, which is below the revenue-neutral rate of 15.3 per cent, spurring the need for discussions on rate rationalisation.

Another GoM on health insurance under the convenership of Choudhary held on Saturday is expected to have suggested relief on the GST applied to life and health insurance premiums.

"GST on pure term life insurance premiums and health insurance for senior citizens is likely to be exempted from the current 18 per cent GST,” said the source.

The source further added that the GoM believes that pure term life insurance policies should be exempt from GST.

Choudhary said, "Every GoM member wants to give relief to people. Special focus will be on senior citizens. We will submit a report to the council. A final decision will be taken by the council."

There might be no GST on insurance premiums paid by senior citizens, irrespective of the coverage amount, a source said.

The GoM, which has been mandated to submit its report to the Council by October-end, includes ministers from Uttar Pradesh, Rajasthan, West Bengal, Karnataka, Kerala, Andhra Pradesh, Goa, Gujarat, Meghalaya, Punjab, Tamil Nadu, and Telangana.

“GoM on life and health insurance is mostly in favour of complete exemption from the 18 per cent GST. However, Tamil Nadu seeks exemption on life insurance but 5 per cent GST without input tax credit on health insurance,” added the source.