The 55th GST Council Meeting, scheduled on December 21, 2024, is likely to focus on some of the most pressing and long-standing GST-related issues. As GST continues to evolve, this meeting can shape future reforms that will impact industries, businesses, and consumers alike. From tax rate changes to structural modifications, the meeting could bring clarity on several long-pending issues. Some of these issues were addressed initially in the 54th GST Council Meeting but await a rigid decision.
Here’s a look at the key topics that may be on the discussion table.
Revisiting GST on Insurance Premiums
A possible reduction in GST on insurance premiums, especially for health and life insurance will form a significant agenda item. Currently, these premiums attract 18% GST, making them costly for policyholders. Reducing GST on essential insurance products could encourage more people to opt for coverage while supporting government initiatives to improve financial inclusion, thereby increasing insurance penetration, which currently stands at 4.2% in India—well below the global average of 7.3%.
What could happen?
- Discussions may focus on reducing the GST rate for essential insurance products like health and life insurance.
- There could be a proposal to exempt senior citizens’ health insurance policies and those up to ₹5 lakh coverage from GST
Rate Rationalization for Essential Products
The four-tier GST rate structure—5%, 12%, 18%, and 28%—has been a point of contention for years. Calls for rationalization have grown, especially for essential items that fall within higher tax slabs. The idea is to make daily-use goods more affordable for the public while also simplifying the tax system. Such changes would also help reduce classification disputes, which have been a challenge for businesses.
What could happen?
- Essential products like packaged water and educational items may see a shift from the 12% to 5% GST bracket.
- The Council might explore a merger of the 12% and 18% slabs into a single rate (possibly 15-16%).
Addressing the Inverted Duty Structure
The issue of inverted duty structure—where taxes on raw materials are higher than on the finished product—has impacted industries like textiles, footwear, and electronics. The mismatch leads to cash flow issues and higher working capital requirements, affecting the liquidity of MSMEs. Correcting this structure will help reduce refund claims, ensure faster input tax credit (ITC) clearances, and provide a level playing field for MSMEs. This move could reduce financial strain on small manufacturers and improve their competitiveness.
What could happen?
- The Council may look at rationalizing input taxes to ensure uniformity with output taxes.
- Possible increases in GST rates on certain finished goods to align with the input tax.
Reorganizing the Four-Tier GST Framework
This will be one of the highlights of the GST council meeting 2024. The existing four-tier GST system—5%, 12%, 18%, and 28%—is seen as complex and cumbersome. Calls to simplify the structure have been growing. Merging certain slabs into one is expected to reduce classification disputes and improve compliance.
What Could Happen?
- The 12% and 18% slabs may be merged into a single 15-16% slab.
- 5% for essentials and 28% for luxury items are expected to remain unchanged.
Possible Inclusion of Petrol and Diesel Under GST
The inclusion of petrol and diesel under GST has been a long-debated topic. Currently, states levy state VAT and central excise on fuel, which gives them significant revenue. However, bringing petrol and diesel under GST could reduce fuel prices by eliminating the “tax-on-tax” effect, especially in logistics and transportation. However, since state revenues are heavily dependent on fuel taxes, the proposal could face resistance.
What Could Happen?
- A 28% GST rate could be proposed for petrol and diesel.
- States may seek compensation for revenue loss if this shift occurs.
Changes to GST Rates on Tobacco Products
Tobacco products are already taxed at the highest slab—28% plus cess—given their association with public health risks. However, there is speculation that the GST Council may recommend further increases in taxes on tobacco and related products, which would help generate additional revenue for the government and contribute to public health initiatives by discouraging consumption.
What Could Happen?
- The Council may recommend a further increase in GST rates or cess on tobacco products, increasing the GST rate on Tobacco from 28% to 35%.
- This move could also align with public health policies to discourage tobacco consumption.
Compensation Cess and Its Possible Continuation
Post pandemic, for states, the compensation cess is a critical revenue source, while for businesses, it means higher taxes on luxury items, cars, and tobacco. The Council’s decision on possible extension of this cess will impact state budgets and pricing for certain products as through this, the states recover pandemic-related revenue losses.
What Could Happen?
- The Council may deliberate on whether to extend the compensation cess beyond 2026.
- Discussions may also focus on the utilization of cess funds.
GST on Luxury Goods Could Increase
Luxury items, such as high-end cars, and premium electronics, are already taxed at 28% plus cess. To promote progressive taxation, the GST Council may consider increasing the rates further on luxury products to tax the ultra-rich and generate additional revenue.
What Could Happen?
- The Council may recommend a rate hike on luxury cars, jewellery, and high-end electronics.
- New cess categories may be introduced for ultra-premium products.
- GST on shoes above ₹1500 might be increased from 18% to 28%.
- Wristwatches worth ₹25000 and more might experience a rise to 28% from the existing 18%.
Relief for Automobile Manufacturers
The automobile sector has consistently pushed for GST relief on electric vehicles (EVs) and hybrid vehicles. The Council could discuss rate cuts to promote the growth of India’s green mobility sector. A reduction in GST on EVs could accelerate India’s EV adoption goals. It would also align with the government’s plan to achieve 30% EV penetration by 2030.
What Could Happen?
- Possible GST rate cuts for EVs and hybrid vehicles.
- Review of the cess on large SUVs to support domestic manufacturing.
Conclusion
The 55th GST Council Meeting 2024 will address crucial issues related to rate rationalization, compensation cess, and inclusion of petroleum under GST. Decisions made during this meeting could have far-reaching implications for businesses, consumers, and state revenues. While the Council’s final decisions will be announced on December 21, 2024, the proposed discussions highlight the government’s efforts to streamline GST and boost revenue generation.
