GST 2.0 Tax Cuts Kick In, What You Need To Know: 10 Points

Prime Minister Modi has referred to the reduction of Goods and Services Tax (GST) rates as the beginning of a "GST Utsav"

New Delhi:

The government's second major restructuring of the Goods and Services Tax (GST), known as "GST 2.0", is implemented today, featuring numerous rate reductions across various sectors.

Here are 10 key aspects of this significant development:

GST exemption for life insurance: All individual life insurance policies now enjoy GST exemption. This covers term insurance plans, endowment policies, and unit-linked insurance plans (ULIPs). The reinsurance of these individual life policies has also been included in this exemption.

Health insurance GST exemption: Under GST 2.0, individual health insurance policies, including family plans and health policies specifically designed for senior citizens, are now exempt from GST.

Taxation of transportation services: Road passenger transport continues to be taxed at 5 percent without input tax credit (ITC). However, transport operators have the option to pay 18 percent with ITC if that arrangement is preferable. For air travel, economy class tickets remain at 5 percent tax, while business and premium class tickets continue to be taxed at 18 percent.

Local delivery services GST liability: When local delivery services are provided through an e-commerce operator (ECO) by an unregistered service provider, the GST responsibility transfers to the e-commerce operator. If the delivery service provider is GST-registered, then that provider bears the tax responsibility.

GST rate for local delivery services: A standard rate of 18 percent has been established for local delivery services.

Explanation for continued medicine taxation: The Finance Ministry has explained why medications remain taxed at 5 percent instead of receiving full exemption. A complete exemption would prevent manufacturers from claiming ITC on inputs such as raw materials and packaging, ultimately increasing their production costs.

GST on leasing and rental arrangements: When goods are leased or rented without an operator, they are taxed at the same rate as the goods themselves. For instance, if purchasing a car incurs 18 percent GST, then leasing that vehicle without a driver will also attract 18 percent GST. This principle applies consistently across different goods categories.

Import GST rates: The updated rates under GST 2.0 will also apply to imported goods. Integrated GST (IGST) will be charged at these new rates starting September 22, unless specific exemptions have been announced.

Different treatment for UHT milk versus plant-based alternatives: Ultra High Temperature (UHT) processed dairy milk has been completely exempted from GST. However, this exemption does not extend to plant-based milk alternatives. Previously, almond milk and similar products were taxed at 18 percent, while soya milk faced a 12 percent tax. Under GST 2.0, all plant-based milk products, including soya milk, will now be uniformly taxed at 5 percent.

Reduced GST on personal care items: GST rates on face powders and shampoos have been lowered. The Finance Ministry has clarified that this reduction was implemented not to benefit large corporations but to simplify the overall GST framework.