In a 19-minute televised address yesterday, PM Modi described the new tax regime, effective from September 22, as “next generation GST reforms” that would mark a decisive step towards “aatmanirbhar Bharat” (self-reliant India).
The Government’s second major overhaul of the Goods and Services Tax (GST), referred to as “GST 2.0”, comes into effect today, with a wide range of rate cuts.
Here are some points on this big story:
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- GST exemption on life insurance policies: All individual life insurance policies are now exempt from GST. This includes term insurance plans, endowment policies, and unit-linked insurance plans (ULIPs). Reinsurance of these individual life policies has also been brought under the exemption.
- GST exemption on health insurance: Individual health insurance policies, including family plans and senior citizen-specific health policies, are exempt from GST under GST 2.0.
- Tax rates on transportation services: Passenger transport by road will continue to be taxed at 5 per cent without input tax credit (ITC). However, transport operators can choose to pay 18 per cent with ITC if they prefer. For air travel, economy class tickets remain taxed at 5 per cent, while business and other premium classes will continue to attract 18 per cent.
- GST on local delivery services: If local delivery services are provided through an e-commerce operator (ECO) by an unregistered service provider, the GST liability shifts to the e-commerce operator. If the delivery provider is registered under GST, then that provider will be responsible for paying the tax.
- GST rate on local delivery services: Local delivery services have been set at a standard rate of 18 per cent.
- Why medicines are not fully exempt from GST: The Finance Ministry clarified why medicines remain taxed at 5 per cent rather than being made fully exempt. If medicines were completely exempted, manufacturers would lose the ability to claim ITC on inputs such as raw materials and packaging. This would raise their production costs.
- GST on leasing and renting: Leasing or renting of goods without an operator is taxed at the same rate as the goods themselves. For example, if the sale of a car attracts 18 per cent GST, then leasing that car without a driver will also be taxed at 18 per cent. The same principle applies to other goods.
- GST rates on imports: The revised rates under GST 2.0 will also apply to imports. Integrated GST (IGST) will be levied at the new rates starting from September 22, unless a specific exemption has been notified.
