GST Council’s 55th Meeting: Key Proposals on Tax Cuts, Hikes, and ATF Inclusion

The 55th meeting of the Goods and Services Tax (GST) Council, led by Union Finance Minister Nirmala Sitharaman along with state finance ministers, will take place on Saturday in Jaisalmer, Rajasthan. This time, the GST Council will discuss major changes in tax rates, life and health insurance, luxury goods, and aviation turbine fuel.

Life and Health Insurance

The Council is very likely to consider substantial reduction in GST on life and health insurance premiums. The following proposals are included:

• Exemption of GST on term life insurance policies’ premiums.
• Exemption of GST on senior citizens’ health insurance.
• GST exemption on health insurance premiums for those with health coverage up to Rs 5 lakh for people not senior citizens.
• Presently, 18 percent GST on policies where health cover is more than Rs 5 lakh.

It aims to make the premiums cheaper for the old as well as for people availing of health policies which carry limited cover.

Luxury and Sin Goods

The Group of Ministers on GST rate rationalisation has proposed a hike in tax rates on luxury and sin goods. The changes to expect are:

• Wristwatches of more than Rs 25,000: GST may go up from 18% to 28%.
• More than Rs 15,000 per pair: GST may go up from 18% to 28%.
• Ready-made garments:
  • Costing up to Rs 1,500: GST to remain at 5%.
  • Costing between Rs 1,500 and Rs 10,000: GST to remain at 18%.
  • Costing above Rs 10,000: GST to increase to 28%.
• Sin goods such as aerated beverages, cigarettes, and tobacco: Introduction of a 35% GST slab, up from the current 28%.

The proposed hikes are part of efforts to increase revenue by taxing luxury and sin goods at higher rates.

Tax Reductions

The Council is also expected to deliberate on GST reductions for essential and everyday items, including: Packaged drinking water (20 liters and above): GST to be reduced from 18% to 5%.

• Two-wheeler with a value below Rs 10,000: GST is cut back to 5% from the prevailing 12%.
• Exercise notebook: GST to be lowered from 12% to 5%.

These will have to cushion the price pinch on the consuming households-mostly for middle-income and lower-middle-income ones-as the three goods listed here are in pretty common consumption.

Aviation Turbine Fuel (ATF)

One of the biggest agenda points is the fact that ATF can be brought in under the GST framework, currently being taxed through the central excise duty with state-level VAT. Airline companies would be enabled to claim ITC, helping reduce operational costs and even ensure uniform taxation across different states. It has remained one of the long-demanding agendas of the airline industry, which hopes this is the beginning of a reformed tax structure and better fiscal viability.

The GST Council is likely to consider rate changes for 148 items, including used electric vehicles and smaller petrol and diesel vehicles. These vehicles may face a rate increase from the current 12% to 18%, which could raise costs for buyers. Officials said that the net revenue impact of these rate changes would be positive.

Also in this agenda, the council has discussed the continuation of GST compensation cess regime until June 2025 so as to support states in fiscal terms. A suggestion to curb GST on food ordering through platforms like Swiggy and Zomato which currently is charged at an 18% level under input tax credit scheme now stand at 5% excluding input tax credit with an effort to reduce costs to food order sector.

Five of the most crucial commodities were excluded from the GST system when it came into effect on July 1, 2017. These commodities were crude oil, natural gas, petrol, diesel, and ATF. Excise duty was still being collected by the central government and VAT by the state governments. It has been a persistent demand from the industries, particularly aviation, that this is a good opportunity to get uniform taxation and reduce costs.

The GST Council’s 55th meeting is anticipated to bring clarity on several tax reforms and rate changes, impacting sectors ranging from insurance and aviation to luxury goods and everyday essentials. The outcome of the meeting will be closely monitored by industries and consumers alike.