With the 55th GST Council meeting scheduled to be conducted on December 21, 2024, at Jaisalmer, Rajasthan, experts said that key areas of discussion will include potential exemptions or reduced GST rates for health and life insurance policies, rate rationalisation measures, GST tax slabs, among other issues. The council, led by Union Finance Minister Nirmala Sitharaman and comprising state finance ministers, is the apex decision-making body for indirect taxes in India.
Earlier on November 18, the GST Council had announced the date of the meeting through a post on X (formerly Twitter). It had said, “The 55th meeting of the GST Council will be held on 21 December, 2024 at Jaisalmer, Rajasthan.” According to sources, the Council was initially slated to meet in November, but it postponed its session due to Assembly elections in Maharashtra and Jharkhand and the subsequent Winter Session of Parliament.
GST exemption on insurance levy
Maulik Manakiwala, Partner, Indirect Tax, BDO India, said, “One of the major expectations from the 55th GST Council meeting is the reduction of GST incidence on health insurance and term insurance. While a relief on the rate of GST on health insurance is widely expected, the form and quantum of relief is something that the Council would need to decide.
The GST Council, in its previous meeting in September, had asked the Group of Ministers (GoM) to finalise the report on the GST levy on insurance by October-end. The GoM had broadly agreed on exempting insurance premiums paid for term life insurance policies, and senior citizens’ health insurance from GST. Also, 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 while 18 per cent GST will continue on premiums paid for policies with health insurance cover of over Rs 5 lakh.
Saurabh Agarwal, Tax Partner, EY, said, “Exempting GST for term life insurance policies and offering lower rates for senior citizens’ health coverage could make insurance more affordable and encourage broader adoption, aligning with the goal of enhancing financial protection for all.” India’s general insurance penetration stands at only 1 per cent, which is far below the global average of 4 per cent
GST rate rationalisation
Besides insurance, the GST Council may also discuss rate rationalisation measures as suggested by GoM. Another GoM had suggested that the Council rejig tax rates on a host of goods, including packaged drinking water, bicycles, exercise notebooks, luxury wristwatches, and shoes.
Vivek Jalan, Partner, Tax Connect Advisory Services LLP, said, “When talking about GST rates, there is a lot of confusion among trade on the GST rate of many items – for example, the GST rate of certain hotels and restaurants, drones, dried milk based ice-cream mix, etc. Here, the taxpayers may be willing to pay a higher GST rate, provided it is set for the Industry as a whole. Hence for these items, on the one hand it is expected that for past periods the GST Council would regularise on ‘as is where is basis’ as per Circular 236, while on the other hand for future it would provide certainty of the GST rates.”
Shivam Mehta, Executive Partner, Lakshmikumaran & Sridharan Attorneys, said, “Rate Rationalisation is also in the pipeline of the upcoming GST Council meeting. GST rates on everyday goods like packaged bottles, notebooks, etc. is suggested to be reduced to 5 per cent from 12 per cent. On the other hand, hi-end luxury goods such as shoes and watches are sought to be burdened with tax rates of 28 per cent. The reports suggest that the Government is expected to yield a revenue surplus of Rs 22,000 crore due to rate change, ensuring that GST revenue is not hampered. It appears that the loss to the revenue on account of relaxation in the insurance sector will be recovered from other goods and services as a part of rate rationalisation. The balance between ensuring adequate revenue generation and maintaining economic stability and fairness require careful consideration, to ensure that excessive burden is not imposed on any one sector.”
He further added that while some sectors such as footwear, fertilizers, textiles, EVs are grappling with the issue of blockage of working capital owing to the accumulated ITC due to the structure of inverted duty. “One can only hope that the said concerns are addressed by way of streamlining the tax structure, as part of rate rationalization,” he said.
GST tax slabs
Currently, the GST framework operates on a four-tier structure with slabs at 5 per cent, 12 per cent, 18 per cent and 28 per cent. While the essential goods are generally taxed at the lowest rates, luxury and demerit goods come under the highest slab, often with an additional cess. With the average tax rate falling below the revenue-neutral level of 15.3 per cent, the discussion on rationalising GST rates has gained urgency. Shivam Mehta from Lakshmikumaran & Sridharan Attorneys, said, “Though merging of the tax slabs is one of the critical points to be addressed, the same is not expected to be discussed in this meeting.”
On online gaming taxation, he further added, “Though the clarifications and the solutions in the sphere of online gaming taxation are hungrily awaited by the industry, the same appears to have been put on a back burner by the Government is and is unlikely to be addressed in this meeting, until the matter is settled by Courts.”
Saurabh Agarwal from EY, concluded, “These deliberations demonstrate the Council’s commitment to addressing long-standing demands for affordability and simplicity while maintaining fiscal prudence. Stakeholders eagerly await the outcomes, which could set a new tone for GST administration in the coming year.”
The previous GST Council meeting was conducted on September 9 in New Delhi and the Council had assigned a GoM the task to submit a report on rate rationalization. The GoM was also asked to present a report on the real estate sector. Additionally, a status report on online gaming and casinos was presented. Two GoM was asked to be formed to focus on medical and health insurance. The council meeting discussed the position of compensation cess and a committee of secretaries will decide on the way forward for Integrated Goods and Services Tax (IGST). It was announced that universities under state and central governments will now be eligible to receive Research and Development (R&D) funds and will be exempt from income tax and GST payments. The GST rate on specific cancer drugs was also reduced from 12 per cent to 5 per cent.