GST 2.0: Key Changes for Drugs and Services

The Indian government's recent updates on GST 2.0 have brought notable changes for manufacturers and service providers. One of the key points is that while these businesses must revise the maximum retail price (MRP) of drugs and medical devices, they are not required to re-label or re-stickering stocks that were released before September 22. This decision aims to ease the burden on companies and streamline the transition process.

In the insurance sector, the Ministry of Finance announced that health and life insurance policies purchased by individuals or their families will now be exempt from GST. However, this exemption does not extend to group policies, which means companies offering such plans will continue to face the tax implications. Additionally, reinsurance services will be exempt from GST, benefiting insurance companies looking to manage their risks more effectively.

Another significant change is concerning the input tax credit (ITC). Effective September 22, insurers will no longer be able to claim ITC on GST paid for inputs related to individual health and life insurance policies. This reversal of credit applies to various inputs, including commissions and brokerages, as the output services are now exempt from tax. This change is crucial for the insurance sector, as it significantly impacts their profitability and pricing strategies.

For other services such as beauty and wellness, the government has mandated a GST of 5% without ITC. This means service providers cannot charge a higher rate of 18% with ITC, ensuring that consumers benefit from lower prices. Similarly, in the hospitality sector, hotels offering accommodations below Rs 7,500 per day will also face a 5% GST without the option for ITC, maintaining consistency across the industry.

Moreover, local delivery services are set to be taxed at 18% GST starting September 22. This includes popular platforms like Zomato and Swiggy, which have previously argued that delivery fees should not be taxed as they only collect these on behalf of the delivery workers. However, the new regulations clarify that the responsibility for GST will lie with the service provider, whether registered or not.

Tax experts have expressed that the government's FAQs on GST 2.0 will facilitate a smoother transition for businesses while minimizing potential disruptions or litigations. These updates address common questions, such as how to revise MRPs for existing stock and manage ITC in light of new exemptions. Overall, the changes are designed to ensure that end customers receive the maximum benefits from these GST reforms.