GST Council Approves Key Changes in Tax Rates: Used Cars, Vouchers, and More

In a major move, the GST Council has approved an increase in the Goods and Services Tax (GST) on used cars, including electric vehicles (EVs), from the existing 12% to 18%. This revised tax rate applies to transactions made through businesses or dealers, bringing them in line with the standard automobile tax rate. However, individual buyers and sellers of used cars will continue to face a 12% GST rate.

The decision was made during the 55th meeting of the GST Council, chaired by Union Finance Minister Nirmala Sitharaman, in Jaisalmer, Rajasthan. State finance ministers also participated in the meeting, which deliberated on various tax proposals.

Key Proposals and Decisions

Insurance Premiums: The Council proposed exempting GST on premiums paid for term life insurance policies and health insurance by senior citizens. Additionally, health insurance premiums of up to Rs.5 lakh paid by individuals, other than senior citizens, will also be tax-exempt. However, health coverage premiums beyond Rs.5 lakh will continue to attract 18 percent GST.

Popcorn and Ready-to-Eat Products: A 5% GST will now apply to ready-to-eat popcorn mixed with salt and spices, provided it is not pre-packaged. Pre-packaged and labeled popcorn will attract a 12% GST, while caramel popcorn will face an 18% tax.

Vouchers Exempted from GST: In a landmark decision, the Council clarified that vouchers will not be treated as goods or services, effectively exempting them from GST. This clarification resolves longstanding disputes and provides relief to retail businesses that extensively use vouchers for promotional activities.

Gift Vouchers: A Welcome Relief

The Council’s clarification regarding vouchers stems from recommendations by its law panel, which cited the Reserve Bank of India (RBI)’s definition of vouchers as prepaid instruments used to settle obligations. This move follows requests from the retail sector and resolves confusion caused by prior rulings, such as the Karnataka Authority for Advance Rulings’ decision to tax vouchers as goods.

Deferred Proposals

Not all decisions were finalized during the meeting. Proposals related to reducing GST rates for food delivery platforms like Swiggy and Zomato, from the current 18% (with input tax credit) to 5% (without ITC), have been postponed for further examination. Similarly, tax adjustments on luxury goods, aviation turbine fuel (ATF), and real estate were deferred due to differences among states.

The GST Council’s decisions on rate adjustments are expected to have a mixed impact across sectors. While exemptions on insurance premiums and vouchers bring relief, the increased GST on used cars could affect automobile sales. The meeting underscores the Council’s ongoing efforts to refine and rationalize India’s indirect tax framework.