A significant overhaul of India’s Goods and Services Tax (GST) structure is on the cards, as a Group of Ministers (GoM) tasked with rate rationalisation has proposed several changes. The proposed changes include increasing the tax rate on luxury items like high-end watches and shoes while reducing rates on essential goods such as packaged drinking water and exercise notebooks.
Luxury Goods in the Crosshairs
One of the most significant proposals is to introduce a price-based GST rate. This means that luxury items, regardless of their category, could be taxed at a higher rate if they exceed a certain price threshold. For instance, watches priced above Rs 25,000 and shoes priced above Rs 15,000 could be moved to the highest 28% tax slab from the current 18%. This move is aimed at ensuring that luxury goods contribute more to the government’s revenue.
Relief for the Common Man
To alleviate the tax burden on common people, the GoM has proposed reducing the GST rate on several essential items. Packaged drinking water of 20 litres and above, bicycles costing less than Rs 10,000, and exercise notebooks could see a reduction in tax rates. This is expected to provide some relief to consumers, especially during times of economic uncertainty.
Insurance Sector Reforms
A separate GoM, focusing on the taxation of insurance products, has recommended exempting health insurance products for senior citizens and reducing the tax rate on health insurance products up to Rs 5 lakh to 5% from the current 18%. However, the panel has not favoured a blanket exemption on term insurance, with members remaining divided on the issue.
The Road Ahead
The GoM on rate rationalisation will meet again next month to finalise its report, which will then be presented to the GST Council for final approval. The GST Council will make the final decision on any changes to the tax rates. The proposed changes could have a significant impact on various industries and consumers, and it remains to be seen how the GST Council will proceed with these recommendations.
