The Group of Ministers (GoM) on GST rate rationalization has recommended significant changes to the current Goods and Services Tax (GST) structure, aiming to provide relief to the common man while increasing taxes on luxury goods.
These recommendations were discussed in a meeting held on Saturday, chaired by Bihar Deputy Chief Minister Samrat Chaudhary. If accepted by the GST Council, these adjustments could potentially lead to a revenue gain of ₹22,000 crore.
Key GST Proposals: Lower Taxes on Essential Goods
The GoM has put forward recommendations to lower GST on several essential goods, which would directly benefit the general public:
Packaged Drinking Water: The GST on 20-liter packaged water bottles could be reduced from 18% to 5%.
Bicycles: For bicycles costing less than ₹10,000, the proposed tax rate is 5%, down from the current 12%.
Exercise Notebooks: The GoM recommended reducing GST on exercise notebooks from 12% to 5%.
These changes are intended to reduce the financial burden on everyday consumers, making basic goods more affordable.
Higher GST on Luxury Items
To offset the revenue loss from these reductions, the GoM has proposed increasing taxes on high-end luxury goods:
Wristwatches: The GST on wristwatches priced above ₹25,000 may be increased from 18% to 28%.
Shoes: Shoes costing more than ₹15,000 per pair could also see a tax hike, with GST rising from 18% to 28%.
Other Luxury Goods: Items like aerated beverages may also face higher GST rates as part of the government’s effort to balance revenue.
This shift towards taxing luxury goods at higher rates aims to ensure that essential items are taxed lower, benefiting the wider public.
Insurance Premium Tax Exemptions
In a separate discussion, the GoM addressed issues related to insurance premiums, with a focus on providing relief to senior citizens:
Health Insurance: The GoM proposed exempting premiums paid by senior citizens for health insurance policies from GST. Additionally, for individuals other than senior citizens, premiums for health coverage up to ₹5 lakh could also be exempted from tax. However, policies with coverage above ₹5 lakh would continue to attract an 18% GST.
Life Insurance: Term life insurance premiums may also be exempt from GST under the GoM’s recommendations, offering further relief.
Bihar Deputy Chief Minister Samrat Chaudhary emphasized that the GoM’s focus is on providing relief, especially to senior citizens, in line with the government’s broader goal of easing financial burdens for vulnerable groups.
The proposed tax rate adjustments are estimated to generate an additional ₹22,000 crore in revenue, which would help the government compensate for potential losses due to the exemptions on insurance premiums. In 2023-24, the government collected ₹8,263 crore from GST on health insurance premiums and ₹1,484 crore from health reinsurance.
Final Decision by GST Council
These recommendations will be presented to the GST Council, chaired by the Union Finance Minister, for final approval. The GoM is expected to submit its report by the end of October, and a final decision will be taken at the next Council meeting.
The GST Council currently follows a four-tier tax structure with rates of 5%, 12%, 18%, and 28%. Essential items are taxed at lower rates, while luxury goods are taxed at higher rates.
The Council is under pressure to streamline the tax structure to improve revenue collection, as the average GST collection has fallen below the revenue-neutral rate of 15.3%.
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