GST Council sets up GoMs on health and life insurance, compensation cess: Key highlights

The Council has decided to form a GoM on health insurance, which will give its report by the end of October.

Finance Minister Nirmala Sitharaman said on September 9 that the GST Council will be forming two key Group of Ministers (GoM), one on rate rationalisation on medical and life insurance and another one on the road ahead for compensation cess.

• The next GST Council meeting in November will take up the recommendation of the new GoM on health and life insurance. The GST Council meeting will be held in November to take a call on reduction of rate on health and life insurance, FM said. The new GoM on medical health insurance will be submitting its report by end of October. The GoM will deliberate upon insurance related matters for senior citizens, life insurance, term life insurance, group insurance, etc. The Council discussed if medical insurance should be introduced only for senior citizens, and if selective exemption will make implementation difficult, Sitharaman said.

Earlier, Chandrima Bhattacharya, the Finance Minister of West Bengal had told ANI after the GST Council meeting that she has sought full exemption on GST on health insurance. “The issue of GST on Health insurance was raised by me. I said that the full exemption should be given...The Chief Minister of Goa supported me. Many of the ministers were of the view that it has to be reduced."

• The Council also decided that GST rates on cancer drugs will be brought lower to 5 percent from existing 12 percent.
• The Council also reviewed the status of GoM on rate rationalisation, headed by Bihar's Deputy CM, and the GoM on real estate. The GoM on rate rationalisation will next meet on September 23, Sitharaman said.
• Seven institutions recently received tax notices for GST on research and development (R&D) funds, which will now be regularised. Finance Minister Nirmala Sitharaman announced that any funds provided for research, whether from public or private sources, will be exempt from GST. There was unanimous agreement on exempting R&D funds for universities. Universities established by central or state laws, as well as those with income tax exemptions, will not be subject to GST on research funds.
• The issue of compensation cess beyond March 2026 will be determined by a Group of Ministers (GoM), the Finance Minister stated, adding that the GoM will also decide on the additional Rs 40,000 crore collected after adjusting for loans and interest. The compensation cess is expected to settle the loan and cess amounts by January 2026, with collections continuing until March 2026. However, if the cess is to be collected beyond March 2026, it can no longer be termed a "Compensation cess." The GoM will decide on the purpose and usage of the cess after March 2026, and a decision will be made before that deadline. Originally, the compensation cess was extended solely to repay GST loans. Once the payments are cleared by or before March 2026, cess collection for compensation purposes will cease. The cess can be collected until March 2026 to repay back-to-back loans and service the interest on them, with the loans expected to be cleared by January 2026. The Council has discussed the compensation cess and projected a surplus of Rs 40,000 crore after loan repayment. A GoM will be formed to determine the future course for the compensation cess.
• Online gaming and casinos show significant revenue growth. Revenue from online gaming surged by 412 percent to Rs 6,909 crore, while revenue from casinos increased by 30 percent to Rs 214 crore over the same period. The comparison spans the six months before and after October 2023.
• Imports of services through related party transactions by airlines will be exempt from GST. Specifically, services imported by a foreign airline's establishment from a related party or any of its establishments outside India, when provided without consideration, will be exempt. The council also recommended regularising such transactions for the past period.
• GST on Namkeens will be lowered from 18% to 12%, FM said, during the post-meeting briefing.
• The rate of GST on car and motorcycle seats are to be increased from 18% to 28%.
• Finance Minister announced the introduction of a Reverse Charge Mechanism (RCM) on metal scrap, applicable up to a certain threshold. Under this system, when an unregistered person supplies metal scrap to a registered person, the supplier must register once the threshold limit is exceeded. The recipient, liable under RCM, will be required to pay tax even if the supplier remains below the threshold. Additionally, a 2% TDS will be applied to Business-to-Business (B2B) transactions involving the supply of metal scrap by registered persons.
• B2C e-invoicing will be introduced on a pilot basis, with invoices issued through a designated portal. When foreign tourists purchase goods and take them out of the country, these transactions qualify as exports. Customs authorities will use e-invoicing to verify eligibility for refunds. The Council approved the introduction of voluntary B2C e-invoicing in selected states, and necessary amendments will be made to facilitate this process.
• Air conditioner for railway was clarified to be taxed at 28%
• A committee on IGST will be established to address a Rs 14,000 crore deficit and update the IGST formula. This committee, led by the additional secretary in revenue, will include officials from both the states and the Centre. Its purpose is to explain how to manage IGST going forward and address the current negative balance. The committee will also work on retrieving any excess IGST distributed to states. If necessary, the modus operandi of IGST will be explained to the states. The committee is expected to submit its report by October.
• Council clarified GST will be at 5% on helicopter services on sharing basis
• Section 11A to address retrospective tax demands will be used in rarest of rare occasions, Revenue Secretary Sanjay Malhotra told the media during the GST Council briefing. Circulars regarding it were not discussed at this point of time, he said. The council's June meeting recommended Section 11A as a legal safeguard against punitive retrospective tax demands to alleviate financial burdens on industries facing outstanding GST dues potentially. The move that could offer relief to India’s real-money gaming industry and other sectors grappling with pending GST dues.
• Council approved to bring renting of commercial property by unregistered person to a registered person under Reverse Charge Mechanism (RCM) to prevent revenue leakage.
• Mismatches in input tax credit have triggered numerous tax notices aimed at curbing evasion. In response, the Council has approved the implementation of an invoice management system.