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GST Council Waives GST on Penal Interest on Loans; Defers Insurance Tax Decisions amid Mixed Reactions
Moneylife Digital Team 23 December 2024
Economy & Nation
In a significant development at the 55th GST council meeting held in Jaisalmer (Rajasthan) concluded with several significant tax framework modifications while the much-anticipated decision on restructuring GST rates for insurance products has been postponed, sparking discussions about priorities in tax policy-making. The meeting, chaired by finance minister (FM) Nirmala Sitharaman, saw several tax-related decisions while deferring this crucial matter that affects millions of Indian households.
 
The postponement of insurance-related GST changes has drawn attention from policy experts and citizens alike, given the critical role of insurance in financial planning and social security. The council's decision to defer the discussion on GST restructuring for insurance products stemmed from the need for more detailed technical discussions. The Group of Ministers (GoM) on insurance, led by Bihar deputy chief minister Samrat Chaudhary, has indicated that further discussions are needed, with the next meeting scheduled for January.
 
The deferral comes at a time when insurance penetration in India remains significantly lower than global averages, making it a crucial policy matter. The proposed changes, including potential GST exemptions for term life insurance premiums and health insurance coverage for senior citizens, could have made insurance products more accessible to the common citizen. Former chief economic adviser Arvind Subramaniam expressed disappointment on X (formerly Twitter), describing it as a 'national tragedy' highlighting that recent GST developments as moving away from the original vision of a 'good & simple tax'.
 
While the insurance decision was deferred, the council made several other significant announcements. Notable among these was the clarification on popcorn taxation, which has generated considerable discussion on social media platforms. The council established different tax rates for various types of popcorn: 5% GST for unpackaged popcorn with salt and spices, 12% for pre-packaged popcorn, and 18% for caramel-coated popcorn. This detailed categorization of a common snack item has drawn attention from citizens, with some questioning the complexity of such classifications.
 
The council also made a significant ruling regarding banking charges, stating that no GST would be payable on penal charges or levies collected by banks and NBFCs (Non-Banking Financial Companies) for non-compliance with loan terms. This clarification helps resolve ambiguity in the banking sector regarding the taxability of such penalties. Moneylife had made a strong case for this in this article https://www.moneylife.in/article/borrowers-reeling-from-18-percentage-gst-on-penal-charges-approved-by-rbi-on-late-payment/75344.html
 
The formation of a new group of ministers to consider allowing states to levy cess under GST during natural calamities represents another significant development from the meeting. This came in response to Andhra Pradesh's request to levy a 1% cess for post-flood financial recovery.
 
The council also approved a new registration process for small firms, aimed at streamlining their compliance procedures. Additionally, decisions regarding GST on food delivery through e-commerce platforms were deferred for further discussion.
 
One notable decision from the council meeting was regarding agricultural products, specifically clarifying that black pepper (whether fresh green or dried) and raisins will not be liable for GST when supplied by agriculturists. This provides important tax relief for farmers dealing in these specific commodities
Other key decisions from the meeting included:
  • Reduction of GST rate on fortified rice kernels to 5% from 18%
  • Implementation of 12% GST on ACC blocks containing more than 50% fly ash
  • Increase in GST from 12% to 18% on used vehicles, including smaller petrol/diesel cars and electric vehicles
  • Exemption of GST on gene therapy
  • Decision to keep aviation turbine fuel (ATF) outside the GST framework 
 
The council is expected to continue its deliberations on pending matters, including insurance tax rates, in upcoming sessions.
 
Comments
r_ashok41
4 weeks ago
Lot of interest was created on the insurance policies gst but still awaiting and hope it sees daylight soon.
Reply
tenkaraimohan
4 weeks ago
The banks have been collecting 18% GST on penal charges with effect from 1st april 2024. In view of the clarification given now, the banks have to refund the wrongly collected GST to all the customers. The amount will definitely run into few hundred crores.

The refund has to be ensured by the Dept of Supervision and CEPD of RBI.
Reply
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