Packaged Water, Bicycles, and Exercise Notebooks to Get Cheaper
Swapnil R Mishra
In a significant move towards providing tax relief to citizens, the Goods and Services Tax (GST) on premiums paid by senior citizens for health insurance and term life insurance premiums for all individuals may soon be exempted. A ministerial panel convened to study this issue, has largely agreed to extend this relief, with a final decision pending approval from the GST Council.
This development is expected to benefit senior citizens and individuals seeking term life insurance, potentially exempting them from the current 18% GST rate levied on life insurance premiums. Health insurance coverage up to Rs 5 lakh may also be GST-free for non-senior citizens, while coverage above this amount will continue to attract an 18% GST rate.
The ministerial panel, comprising 13 members, was formed to review GST rates on health and life insurance premiums. Bihar Deputy Chief Minister Samrat Chaudhary, convenor of the panel, emphasized the focus on providing relief to people, particularly senior citizens. The panel’s recommendations will be submitted to the GST Council, which will make the final decision, likely in its next meeting in November-December
The Group of Ministers (GoM) on rate rationalisation has proposed significant GST rate revisions, aiming to provide relief to consumers while boosting revenue. Key changes include reducing GST rates on essential items like packaged water (5% from 18%) for quantities above 20 litres, bicycles priced below Rs 10,000 (5% from 12%), and exercise notebooks (5% from 12%). Additionally, health insurance premiums for senior citizens and term life insurance may be exempted.
The Goods and Services Tax (GST) Council is considering a rate rejig that would shift shoes priced above Rs 15,000 and wristwatches above Rs 25,000 to the topmost 28% slab from the current 18% ¹. This move aims to offset revenue losses from reducing GST rates on insurance premiums and other essential items, the minister said.
The insurance sector is set to receive significant GST relief, with term life insurance premiums likely to be exempted for all individuals, including family plans. Additionally, health insurance premiums paid by senior citizens will be fully exempted, regardless of coverage amount. For other citizens, health insurance coverage up to Rs 5 lakh will also be GST-free, while coverage above Rs 5 lakh will continue to attract an 18% GST rate. These exemptions aim to provide relief to consumers, particularly senior citizens and are subject to final approval by the GST Council in its next meeting.
The Goods and Services Tax (GST) Council is considering exemptions and rate reductions to provide relief to citizens, especially senior citizens. Bihar Deputy Chief Minister Samrat Choudhary, convenor of the Group of Ministers (GoM) on insurance and rate rationalisation, announced that the panel will submit a report to the Council, proposing exemptions for specific insurance premium categories and reducing the GST rate from 18%.
The GST Council’s 54th meeting on September 9 concluded with a broad agreement to reduce the 18% tax rate on health and life insurance premiums, but specifics were referred to the Group of Ministers (GoM) on life and health insurance premiums for further discussion ¹. This GoM, expanded from six to 13 members, aims to submit its report by October. The GST Council will convene in November to make a final decision on the rate recommendations.
“The Goods and Services Tax (GST) Council is likely to exempt term life insurance premiums from GST, including those for family plans. This decision was made after a meeting where most states agreed to provide relief to consumers, particularly senior citizens. They will receive total relief on health insurance premiums, while others will get exemption up to Rs 5 lakh coverage. The existing 18% GST rate will still apply to health insurance coverage exceeding Rs 5 lakh,” a state finance minister, who is a member of the GoM, said after the meeting on Saturday.
The exemption proposal for senior citizens’ health insurance and term life insurance premiums is expected to result in revenue losses of Rs 2,200 crore and Rs 200 crore, respectively. However, this loss will be offset by gains of around Rs 22,000 crore from the proposed hike in rates on several high-end items, such as luxury watches and shoes sources said.
The Goods and Services Tax (GST) Council is set to provide relief to consumers through rate rationalization. In its second meeting, the Group of Ministers (GoM) discussed reducing GST rates for essential items like packaged drinking water, bicycles, and exercise notebooks. Packaged water bottles above 20 litres will see a reduced GST rate of 5% from the current 18% ¹. Bicycles costing less than Rs 10,000 will be charged 5% GST, down from 12%, and exercise books may also see a reduced GST rate of 5% from 12%.
The Group of Ministers (GoM) on rate rationalisation will continue discussions on proposals for GST rate rejigs, another state finance minister said.
“Rate rationalization remains an ongoing effort to optimize India’s Goods and Services Tax (GST) structure. Discussions have focused on common-use items, with proposed reductions including packaged drinking water (5% from 18%), bicycles below Rs 10,000 (5% from 12%), and exercise notebooks (5% from 12%),” the minister said.
The GST Council’s December 2018 meeting brought significant rate reductions, moving items like movie tickets (above Rs 100), television screens/monitors (up to 32 inches), digital cameras, video game consoles and power banks with lithium-ion batteries out of the 28% slab. However, items such as dishwashing machines, pan masala, cigarettes, air conditioners, cars and aircraft for personal use remained in the 28% category. This rationalization aimed to provide relief to consumers and promote economic growth while maintaining revenue neutrality.
The decision to reduce GST on insurance premiums was prompted by demands from Opposition leaders, including Rahul Gandhi and Mamata Banerjee, who sought the withdrawal of GST on life and health insurance premiums. Banerjee had written to Finance Minister Nirmala Sitharaman, urging a rollback of GST on these premiums.
Union Minister Nitin Gadkari expressed concerns about GST on life and medical insurance premiums, stating it amounts to taxing the “uncertainties of life” in his July 28 letter to Finance Minister Nirmala Sitharaman. However, Sitharaman clarified in August that taxes on insurance premiums existed before GST and emphasized that GST revenues are shared between states and the central government.
Gadkari’s concerns highlight the impact of GST on insurance premiums. Before GST, life insurance premiums were subject to 15% service taxes, including Basic Service Tax, Swachh Bharat Cess, and Krishi Kalyan Cess. After GST implementation, life insurance premiums are taxed at 18%, increasing the financial burden on policyholders.
