Sweeping changes to the goods and services tax (GST) in the next few weeks could also include big relief on health and life insurance premiums. On top of the expected rate rationalisation, a group of ministers (GoM) set up by the GST Council has proposed exempting health and life insurance premiums for individuals from the levy, people familiar with the development said. This followed the Centre’s suggestion to this effect to the panel of state finance ministers as part of GST 2.0 reforms.
Addressing the GoM tasked to examine rate rationalisation, the future of the compensation cess and insurance, finance minister Nirmala Sitharaman said the three-pronged GST reforms will seek to provide greater relief to consumers, farmers, the middle class and MSMEs while ensuring a simplified regime. Prime Minister Narendra Modi had in his Independence Day address announced an overhaul of the eight-year-old indirect tax, calling it a Diwali gift for the people.
The Centre has proposed scrapping the 12% and 28% rates and retaining just a two-slab structure of 5% and 18%, along with a special rate of 40% for six-seven items including so-called sin goods such as cigarettes and luxury cars.
Sitharaman said the GST 2.0 reforms are based on three pillars—structural reforms, rate rationalisation and ease of doing business —and will make the country Atmanirbhar or self-reliant. She underscored that the Centre is committed to building a “broad-based consensus with the states in the coming weeks in the spirit of cooperative federalism”. The reformed GST will “enhance affordability, boost consumption and make essential and aspirational goods more accessible to a wider population,” the minister told the GoM.
Predictability in GST Policy
The GoM on rate rationalisation will deliberate on the Centre’s proposal for the wider GST revamp Thursday and make a recommendation to the GST Council, which will likely meet in September, ET had reported. The GST Council is the apex decision-making body for the levy.
Sitharaman said the proposed changes will correct inverted duty structures to cut input tax credit accumulation and boost domestic value addition, as well as resolving classification issues for simpler compliance and fewer disputes. The move will ensure stability and predictability in GST policy to strengthen industry confidence and longterm planning, she added.
Cover Story
The 13-member GoM on insurance, headed by Bihar deputy chief minister Samrat Choudhary, that met Wednesday has favoured relief for individuals. Commercial and insurance products may continue to attract GST at 18%. “The Centre’s proposal is clear that individual insurance policies should be exempt from GST. This has been discussed and the GoM report will be presented to the council,” Choudhary told reporters after the meeting. Currently, health and life insurance premiums attract 18% GST.
Some states have reservations over whether the industry will pass on the benefits to consumers, given that they may not get input tax credit on this. “Almost all states were in favour of the proposal, but they asked the GST Council to devise a mechanism by which the GST rate cut benefits are passed on to the customer,” said GoM member and Telangana deputy chief minister Mallu Bhatti Vikramarka. The exemption will result in an estimated annual revenue loss of Rs 9,700 crore, he said.
Chaudhary said the GoM will submit its report to the GST Council, which will include views and concerns expressed by some state finance ministers. “All members have given their approval for lowering rates. Some states have given their own views,” he said, adding that a final call on rates would be taken by the council. The GoM on health and life insurance was set up in September last year.
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