GST Council Meeting: Lower Taxes on Insurance, ATF Inclusion and Rate Revisions - What To Expect

The 55th meeting of the GST Council began on Saturday in Jaisalmer, with major deliberations expected on reducing taxes on health and life insurance premiums, and the inclusion of Aviation Turbine Fuel (ATF) under the Goods and Services Tax (GST) regime. The Council, chaired by Union Finance Minister Nirmala Sitharaman and attended by state counterparts, will also consider rate revisions on 148 items.

Key Discussions on Health and Life Insurance Taxation

One of the primary items on the agenda is the tax treatment of health and life insurance premiums. A Group of Ministers (GoM), led by Bihar Deputy Chief Minister Samrat Chaudhary, had previously proposed in November to exempt term life insurance premiums from GST. Additionally, premiums paid by senior citizens for health insurance are also suggested to be tax-exempt. For individuals under 60 years of age, premiums for health insurance policies with coverage up to Rs 5 lakh are proposed to be exempt from GST. However, premiums for policies covering health risks over Rs 5 lakh will continue to attract the standard 18% GST rate.
States are largely in favor of reducing taxes on insurance premiums to provide relief to the common man, and a final decision on the matter is expected to be made during this meeting.

Other Proposals Under Review
Several other proposals are also under review, including the possible reduction of taxes on food delivery platforms like Swiggy and Zomato. The GoM has suggested cutting the GST rate on these platforms to 5% (without input tax credit) from the current 18% (with ITC). Another significant proposal is a rate hike on used electric vehicles (EVs) and smaller petrol and diesel vehicles. The proposal suggests raising the GST rate on these vehicles from 12% to 18%, aligning them with larger vehicles. The GST Council is expected to review these proposals in the coming days.

GST Compensation Cess Extension
The GoM on GST compensation cess is also expected to receive a six-month extension until June 2025 to submit its report. The GST compensation cess regime, which is set to expire in March 2026, has been under scrutiny, and a panel of ministers, headed by Union Minister of State for Finance Pankaj Chaudhary, is working on its future course.

Rate Rationalization Proposals
Another key agenda item is the report from the GST rate rationalization panel, which has proposed adjustments to taxes on 148 items. A significant suggestion is increasing the GST on sin goods, such as aerated beverages, cigarettes, and tobacco products, to 35% from the current 28%. Additionally, the panel recommended changes to the GST rates on apparel, proposing a 5% tax on ready-made garments costing up to Rs 1,500, an 18% tax for garments priced between Rs 1,500 and Rs 10,000, and a 28% tax on items above Rs 10,000. This proposal would revise the current tax structure, where garments costing up to Rs 1,000 attract 5% GST, and those above Rs 1,000 face a 12% rate.

The GoM also recommended a GST hike on shoes priced above Rs 15,000 per pair from 18% to 28%, as well as an increase in the tax rate on wristwatches costing above Rs 25,000 from 18% to 28%.

Proposals for Lower GST on Common Goods
In addition to the sin goods and luxury items, the GoM suggested lowering the GST on more common goods. This includes reducing the tax on packaged drinking water (20 liters and above) from 18% to 5%, lowering the tax on bicycles costing under Rs 10,000 from 12% to 5%, and cutting the GST rate on exercise notebooks from 12% to 5%. As discussions continue, the Council is expected to make decisions on some of these proposals, though major changes to the rate structure are not anticipated in this meeting. Telangana Deputy Chief Minister Mallu Bhatti Vikramarka noted that the taxation system should be more flexible and not burden the public, and he indicated that his state would present its views during the discussions.