A major overhaul of India’s Goods and Services Tax (GST) regime could be on the cards as the GST Council prepares to meet for what is being described as one of the most significant reviews since the tax system was introduced eight years ago.
According to a Times of India report, the Council is weighing proposals that could reshape tax slabs, eliminate GST on pure term insurance policies, and chart out a post-compensation cess roadmap for states.
GST slab shake-up: Is the 12% rate on its way out?
One of the key items under review is the scrapping of the 12% GST slab, a move that could lead to broader rationalisation of consumer tax rates. While this could benefit end consumers by reducing taxes on commonly used items, the Council is reportedly also considering whether certain goods primarily used by businesses should be moved to a higher slab, possibly to offset any revenue dip.
Officials involved in the discussions told TOI that no final decision has been reached, but the intent is to streamline the structure into fewer slabs, creating a more transparent and predictable framework for both consumers and businesses.
Insurance relief on the cards
The life insurance industry, which has long argued against the steep 18% GST levied on pure term insurance policies, might receive long-awaited relief. The Centre is reportedly inclined to bring term policies under a zero-tax bracket, going further than the industry’s request to reduce it to 12%.
Health insurance could also see a reduction in GST rates, although no firm decision has been made yet. The move is seen as an effort to ease the financial burden on the middle class and encourage wider insurance coverage across the country.
Compensation cess: What’s next after March?
With the compensation cess mechanism set to expire in March 2026, the Council is expected to deliberate on strategies to maintain state revenues. The cess currently helps states offset revenue losses from GST and is mostly funded through levies on “sin goods” such as tobacco and pan masala.
States remain wary of approving GST rate cuts without clarity on what will replace the cess fund, especially in the absence of guaranteed compensation.
One possibility is to retain the cess on select goods, ensuring the Centre has a pool of funds to assist states facing revenue deficits.
Consumption vs. revenue: Finding a balance
The Centre is reportedly open to short-term revenue losses if they translate into increased consumption and compliance over time. Officials told TOI that tax cuts often lead to higher volumes and broader economic activity, which in turn improve indirect tax collections.
However, achieving consensus among states—particularly those concerned about their fiscal autonomy and income—is likely to be a challenge.
Need for simplification and stability
Although GST reform and slab simplification have been debated for over a year, a breakthrough has so far proved elusive. The group of ministers handling tax rationalisation has largely proposed incremental tweaks, rather than a sweeping overhaul.
Sources quoted by TOI said the Centre now wants to establish a stable and predictable tax environment, reducing the need for frequent revisions and providing long-term clarity to businesses and consumers alike.