The government is working on a sweeping Goods and Services Tax (GST 2.0) blueprint, which could see insurance premiums taxed at just 5% or even zero, compared to the current 18%, according to a report citing official sources. The move is aimed at making insurance more affordable and reducing the financial burden on households.
Following the news, insurance company stocks surged up to 5%, reflecting investor optimism over the potential tax relief.
Major Overhaul of GST Structure
Under the proposed GST 2.0 framework, the government plans to simplify the tax structure into two main slabs-5% and 18%, along with a special 40% slab for luxury and sin goods such as alcohol and tobacco. The current 12% and 28% slabs are likely to be phased out, creating a streamlined and predictable regime.
Essential items including food, medicines, medical devices, stationery, and daily-use products like toothbrushes and hair oil will remain either exempt or taxed at 5%. Meanwhile, middle-class consumption goods such as televisions, refrigerators, and air conditioners are expected to be placed under the 18% slab.
Industry-Specific Focus
The government has identified automobiles, handicrafts, farm products, textiles, fertilisers and renewable energy as priority sectors for tailored reforms within GST 2.0. Special rates such as 0.25% on diamonds and precious stones and 3% on jewellery will continue to apply, supporting industry-specific growth.
Eliminating Classification Disputes
The simplified slab structure is also designed to eliminate classification disputes that have plagued businesses under the current regime. Items such as namkeens, parathas, buns and cakes, which previously attracted different tax rates depending on ingredients, are expected to fall under a uniform treatment.
Sin Tax for Tobacco and Alcohol
For the alcohol and tobacco sector, the government has proposed a 40% sin tax, limited to a small set of products. Importantly, the overall tax incidence on tobacco products will remain at 88%, ensuring no revenue loss from this high-tax segment.
Also Read: GST Reforms: Sin Goods to Stay Costly, Relief Likely for Man-Made Fabrics
A Landmark Reform Since GST Rollout
If implemented, GST 2.0 would represent one of the most comprehensive reforms since the launch of GST in 2017. By rationalising rates, cutting tax on essential services like insurance, and targeting high-value goods with sin taxes, the government hopes to create a simpler, fairer, and more growth-friendly tax system.
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