From food delivery to luxury watches: GST Council to debate rate changes

The 55th Goods and Services Tax (GST) Council meeting, convened in Jaisalmer, on Saturday (21 December) aims to strike a balance between providing tax relief to the masses and generating additional revenue through higher levies on luxury and non-essential goods.

With 29 state finance ministers and central representatives gathering for crucial deliberations, the meeting’s agenda spans rate rationalisation, inclusion of aviation turbine fuel (ATF) under GST, and the future of the compensation cess mechanism.

Tax relief on essentials

The Council is set to consider rate reductions on mass-consumption items to ease the financial burden on citizens. Key proposals include:

Food Delivery Services: The GST rate on services by food delivery platforms such as Swiggy and Zomato may drop to 5 per cent from the existing 18 per cent.

Insurance Premiums: Senior citizens could benefit from a GST exemption on health insurance premiums, while term life insurance premiums for all citizens may also be exempted. Health insurance policies with coverage up to Rs 5 lakh are expected to be tax-free, with the 18 per cent rate continuing for policies exceeding this threshold.

Packaged Drinking Water: Bottled water sold in containers over 20 liters could see a rate cut from 18 per cent to 5 per cent.

Bicycles and Notebooks: Bicycles priced below Rs 10,000 and exercise notebooks may witness a reduction in GST from 12 per cent to 5 per cent.

Higher levies on luxury and non-essential goods

To offset revenue losses from tax cuts, the Council is likely to increase rates on high-end goods:

Luxury Items: Wristwatches costing over Rs 25,000 and shoes priced above Rs 15,000 are likely to move to the 28 per cent GST slab, up from 18 per cent.

Readymade Garments: A new tiered structure proposes 5 per cent GST for garments priced up to Rs 1,500, 18 per cent for those between Rs 1,500 and Rs 10,000, and 28 per cent for garments above Rs 10,000.

Sin Goods: Items such as tobacco and aerated drinks may face a special GST rate of 35 per cent, replacing the current 28 per cent slab with additional cess.

Inclusion of Aviation Turbine Fuel (ATF)

The inclusion of ATF under GST is a significant item on the agenda. Currently, ATF falls outside the GST framework, subject to separate taxes by the Centre and states. This prevents airlines from claiming input tax credits on ATF, which constitutes over 40 per cent of their operational costs. Industry stakeholders are optimistic that the Council will take steps to address this long-pending issue.

Compensation cess and revenue gaps

The Council will also deliberate on the future of the compensation cess, initially introduced to offset revenue losses for states during GST implementation. Extended until March 2026 to repay pandemic-era loans, the cess mechanism faces questions about its long-term viability. Proposals include extending its timeline further or carving out a special 35 per cent rate for select items in the highest tax slab.

Challenges in rate rationalisation

Despite the urgency to streamline GST rates, recent submissions by state ministers to the Group of Ministers (GoM) indicate slow progress. Many states are hesitant to introduce significant changes while revenues remain stable. To expedite the process, the Council is expected to establish a timeline for concluding the GoM’s deliberations. Additionally, the GoM may be encouraged to propose multiple rate structure alternatives, allowing the Council to deliberate with inputs from public feedback.

Balancing revenue and consumer relief

The proposed tax exemptions and rate cuts could result in revenue losses of approximately Rs 2,400 crore, but this is expected to be offset by an estimated gain of Rs 22,000 crore from higher levies on luxury and sin goods.

While the four-slab GST structure—5 per cent, 12 per cent, 18 per cent, and 28 per cent —is likely to continue in the medium term, the Council’s decisions today could pave the way for a more balanced and inclusive taxation framework. With critical reforms on the table, the outcomes of this meeting are expected to have far-reaching implications for India’s economic landscape.