GST Council Meeting: From Life Insurance Rate Rationalisation to ATF Likely on Table; Check Key Expectations Here

The GST (Goods and Services Tax) Council is scheduled to meet on December 21, 2024 in Jaisalmer, Rajasthan under the chairmanship of  Finance Minister Nirmala Sitharaman. The council, which includes representatives from the central government, states, and union territories, is crucial in shaping GST policies. It recommends to the union and states on GST matters, including taxable/exempt goods and services, model laws, levy principles, place of supply, threshold limits, GST rates, special rates for emergencies, and provisions for specific States.

It is expected that the 55th council meeting will consider several long pending issues for discussion, with a primary focus on a tax rationalisation of life insurance policies.

Proposed GST Changes on Insurance

According to reports, a Group of Ministers (GoM) has submitted a report regarding GST rates on insurance premiums, led by Deputy Chief Minister of Bihar Samrat Chaudhary. As per Business Standard, the GoM recommended full GST exemption on pure-term life insurance policies. It also suggested a reduction in the GST rate on individual health insurance premiums to 5 per cent from current 18 per cent.

During the winter session of parliament, on December 2, Sitharaman informed the Lok Sabha in a written reply that a reduction in GST rates on life and health insurance premiums is expected to benefit the policyholder directly, especially in a competitive market with many insurers.

She also said that if a recommendation for a reduction in GST rate will be made by the GST Council, the cost of insurance to the policy holder would likely to come down.

Read More | Why the GST Council is Struggling to Deliver the Big-Ticket Reforms India Needs?

At present, 18 per cent GST is applicable on health insurance, term and unit-linked insurance (ULI) plans. On endowment plans, the first-year attracts 4.5 per cent and in the second year it stands at 2.25 per cent. Meanwhile, GST rate for single premium annuity policies is 1.8 per cent.

Earlier, the Insurance Regulatory and Development Authority of India (IRDAI) also extended its support towards the move to rationalise GST rates on insurance premiums. It argued that increased longevity and healthcare needs necessitate greater health insurance adoption.

Calling out the existing inconsistency where medical services are exempt but premiums attract GST as an unfair burden, the insurance regulator said that GST exemption to micro-insurance and senior citizen health policies would benefit disadvantaged sections.

The Financial Services Department has also supported for the move, particularly for senior citizens, micro-insurance policies (up to the prescribed limit under the Pradhan Mantri Jan Arogya Yojana, currently Rs 5 lakh), and term life insurance.

These developments further boost the probability of the GST Council to consider tax reduction on health insurance products.

Decision on ATF

As per reports, a prominent boost for the aviation industry may be on the horizon as there is possibility of the council to consider bringing aviation turbine fuel (ATF ) under GST.

At present, ATF subjected to an 11 per cent central excise duty with a reduced rate of 2 per cent is available under the Regional Connectivity Scheme (RCS). Additionally, a value-added tax (VAT) is levied on ATF at different rates, that varies from state to state, creating a patchwork of rates and adding layers of complexity and inconsistency to the overall taxation framework for the aviation sector.

Focus on IGST, Real Estate and Cess

As per Moneycontrol, GoM on real estate could not reach a consensus and thus it will not present its report at the 55th GST Council meeting.

Likewise, citing ongoing deliberations and additional legal and procedural complexities, the council is likely to give a six-month extension to the GoM on Cess which is chaired by Minister of State for Finance Pankaj Chaudhary.

The report further said that the report on IGST settlement is finalised and it will be a key point of discussion in the December meeting.