What you need to know about GST 2.0 as tax cuts kick in on Monday

New Delhi, Sept 21 (IANS) Ahead of the beginning of GST rejig from Monday, the Finance Ministry issued another detailed explanation of the cut in tax rates on goods and services announced as part of the reforms, which aim to simplify rates, remove anomalies, and make the system easier for both businesses and consumers.

1. Which life insurance policies are covered under the GST exemption?

The exemption applies to all individual life insurance policies, including term plans, endowment policies, and ULIPs. Reinsurance of these individual policies is also exempt.

2. Which health insurance policies are covered under the GST exemption?

Individual health insurance policies, including family floater and senior citizen plans, are exempt from GST. Reinsurance of such individual policies is also exempt under this decision.

3. Will passenger transportation services be taxed at 18 per cent?

No. Passenger transport by road will continue at 5% without ITC, though operators may opt for 18 per cent with ITC. In the case of air travel, economy class is taxed at 5 per cent, while other classes remain at 18 per cent.

4. What is the applicable GST rate on multimodal transport of goods?

If the multimodal transport does not include any air leg, it is taxed at 5 per cent with limited ITC (restricted to 5 per cent of the value). If any portion involves air transport, the applicable rate is 18 per cent with full ITC.

5. Who is liable to pay GST on local delivery services provided through an ECO?

If local delivery services are provided through an e-commerce operator (ECO) by an unregistered person, the e-commerce operator is responsible for paying GST. If the service provider is registered, then that provider is liable to pay the tax.

6. What is the GST rate applicable on local delivery services?

Local delivery services are taxed at 18 per cent.

7. Is it necessary to recall and re-label the MRP on medicines already in the supply chain before September 22, 2025? How will the re-labelling be carried out?

No recall of stock is required. Manufacturers only need to issue revised price lists and share them with dealers, retailers, and regulators. Stock already in the market can continue to be sold, provided billing reflects the new prices.

8. Why haven’t all medicines been fully exempted from GST?

Exempting medicines would prevent manufacturers from claiming ITC on raw materials and inputs, raising their production costs. These costs would eventually be passed on to consumers. Keeping medicines at a concessional 5 per cent rate (except those specified at nil rate) ensures affordability while allowing ITC to flow through the supply chain.

9. Why hasn’t GST been removed on raw cotton?

Cotton is taxed under reverse charge, so farmers do not pay GST directly. This system keeps the input tax credit chain intact for the textile industry, which helps keep costs stable and benefits consumers.

10. What is the tax treatment for leasing or renting services without an operator?

Majority of leasing or renting without operator is taxed at the same rate as the goods themselves. For example, if a car is taxed at 18 per cent, then renting or leasing that car without a driver is also taxed at 18 per cent. The same rule applies to other goods; the tax on renting matches the tax on buying.

11. Will the revised GST rates also apply to imported goods?

Yes. IGST on imports will be levied at the revised GST rates from 22nd September, except where a specific exemption has been provided.

12. UHT (Ultra High Temperature) milk has been exempted. Does this exemption also apply to plant-based milk?

No. The exemption is only for dairy UHT milk. Plant-based milk drinks (like almond milk) earlier attracted 18 per cent GST, and soya milk drinks 12 per cent. Now all plant-based milk drinks, including soya milk, will be taxed at 5%.

13. Why has GST on face powders and shampoos been reduced, and will this not also benefit MNCs and luxury brands?

Face powders and shampoos are common household items used across all sections of society. While premium or luxury brands will also see the benefit, the main purpose of the rate cut is to simplify the GST system. Having separate rates based on brand or price would make the tax structure complicated and difficult to administer.

--IANS

sps/vd