Why the Insurance Industry Isn’t Happy About the ‘Nil’ GST Proposal

Why the Insurance Industry Isn’t Happy About the ‘Nil’ GST Proposal

 The Indian insurance sector is one of the fastest-growing financial industries, playing a crucial role in protecting lives, health, and assets. Over the last decade, the government has pushed hard to increase insurance penetration in the country through awareness campaigns, digital adoption, and tax benefits. However, a new discussion around a ‘nil’ GST proposal on insurance products has sparked concerns in the industry.

 

At first glance, the idea of removing GST on insurance premiums may sound like good news for policyholders. After all, it would make insurance policies cheaper, right? But the reality is more complicated. Industry experts, insurers, and financial analysts argue that a nil GST regime may do more harm than good, creating long-term challenges for both insurance companies and policyholders.

 

In this article, we will explore why the insurance industry is worried about the proposal, what it could mean for customers, and how policymakers can strike a balance.

 

Current GST Structure on Insurance

 

Insurance premiums in India currently attract 18% GST. This applies to most types of insurance, including life, health, motor, and general insurance. For example:

 

If your health insurance premium is ₹20,000 per year, you pay an additional ₹3,600 as GST.

 

If your motor insurance premium is ₹10,000, GST adds ₹1,800 on top.

 

For customers, this makes insurance more expensive. For insurers, it means they must deal with higher compliance and ensure accurate tax collection.

 

The proposal for ‘nil GST’ on insurance products has been raised with the intention of making policies more affordable, especially for middle-class and low-income groups. However, insurers see risks in this move.

 

Why the Insurance Industry Opposes the ‘Nil’ GST Proposal

1. Loss of Input Tax Credit (ITC)

 

One of the biggest concerns is the potential loss of Input Tax Credit (ITC).

 

Currently, insurance companies pay GST on various services they use—advertising, IT systems, outsourcing, medical networks, and office expenses. They then claim ITC to offset the GST collected from policyholders.

 

If GST on insurance premiums becomes nil:

 

Insurers will still pay GST on services they consume.

 

But they won’t be able to claim ITC since they won’t be collecting GST from customers.

 

This will directly increase operational costs for insurers.

 

As a result, insurers may pass on higher costs to customers indirectly, making premiums expensive in the long run despite the nil GST move.

 

2. Impact on Government Revenue

 

Insurance contributes significantly to India’s GST collections. If premiums are exempted from GST:

 

The government could lose thousands of crores in annual revenue.

 

This shortfall might force the government to increase taxes elsewhere, indirectly impacting citizens.

 

Thus, while customers may initially benefit, the broader economy may face challenges.

 

3. Distortion of Tax Neutrality

 

One of the primary goals of GST was to ensure tax neutrality—where businesses don’t suffer from cascading taxes. A nil GST on insurance breaks this chain.

 

For example:

 

Hospitals, third-party administrators, and IT vendors will charge GST to insurers.

 

Insurers cannot claim credit for these costs.

 

This results in double taxation, which was the very problem GST was meant to solve.

 

4. Hidden Premium Hikes

 

While customers may expect cheaper insurance with nil GST, insurers warn of the opposite. Since companies will lose ITC, they may adjust premiums upward to cover the gap.

 

Imagine this scenario:

 

Current premium: ₹10,000 + ₹1,800 GST = ₹11,800

 

Under nil GST: Premium might be revised to ₹11,200 (to absorb input costs)

So instead of big savings, customers may see only marginal benefits.

 

5. Compliance and Operational Challenges

 

Insurance is already a heavily regulated industry. A shift to nil GST could require:

 

Changes in billing systems

 

Adjustments in accounting processes

 

Restructuring contracts with hospitals, agents, and service providers

 

This could add new administrative burdens for insurers at a time when they are already investing heavily in digital adoption and customer service.

 

6. Global Practices

 

Globally, most countries tax insurance services in some form. For example:

 

In the UK, a 12% Insurance Premium Tax (IPT) applies.

 

In European Union nations, VAT exemptions exist, but insurers cannot claim ITC, making operations costlier.

 

India moving towards nil GST could create similar inefficiencies as seen in Europe.

 

What It Means for Policyholders

 

While the proposal appears customer-friendly, policyholders should understand its implications:

 

Short-term benefit, long-term cost – Premiums may reduce slightly initially, but insurers could revise rates upward later.

 

Reduced innovation – Higher operational costs may discourage insurers from introducing new, affordable products.

 

Slower claim settlement – If insurers cut costs to manage losses, service quality might get impacted.

 

Limited tax benefits – Currently, GST paid is part of your premium, which indirectly strengthens government revenue. With nil GST, tax deductions on insurance (like under Section 80C or 80D) may remain, but the ecosystem weakens.

 

Industry Suggestions Instead of Nil GST

 

The insurance industry is not against reforms. In fact, insurers agree that making insurance affordable is essential for increasing penetration. But they believe there are better alternatives than nil GST, such as:

 

1. Lower GST Rate Instead of Nil

 

Instead of removing GST entirely, experts suggest reducing it from 18% to 5% or 12%. This would:

 

Make premiums more affordable.

 

Allow insurers to continue claiming ITC.

 

Maintain revenue flow for the government.

 

2. Special GST Exemptions for Essential Insurance

 

Health insurance, especially family floater and senior citizen plans, could attract a lower GST slab.

 

Life insurance products with low sums assured could be given relief.

This targeted approach avoids hurting the entire sector.

 

3. Incentives for First-Time Buyers

 

Instead of broad tax cuts, the government could offer GST rebates for first-time policyholders, encouraging uninsured citizens to enter the safety net.

 

4. ITC Flexibility

 

If nil GST is implemented, the government could allow insurers to continue claiming ITC on expenses. This would prevent cost escalation.

 

The Bigger Picture: Insurance Penetration in India

 

India’s insurance penetration is still low compared to global standards:

 

Life insurance penetration: ~3.2% of GDP (global average ~6.5%)

 

Non-life insurance penetration: ~1% of GDP (global average ~4%)

 

To achieve the goal of “Insurance for All by 2047,” affordability is important, but sustainability for insurers is equally critical. If the sector becomes financially strained due to nil GST, the larger vision may suffer.

 

Expert Opinions

 

Industry Leaders: Insurers like HDFC Life, ICICI Lombard, and SBI Life have expressed concerns over GST exemptions, calling them “well-intentioned but risky.”

 

Economists: Experts argue that instead of blanket nil GST, a graded tax relief model is more sustainable.

 

Policy Analysts: They highlight that sudden tax policy shifts can cause uncertainty, which is bad for long-term financial planning.

 

FAQs on GST and Insurance

 

Q1. Why does the insurance industry oppose nil GST?

Because it removes input tax credit benefits, increases operational costs, and may ultimately raise premiums.

 

Q2. Would customers save money under nil GST?

Only marginally in the short run. Insurers may revise premiums upward to cover costs, reducing the benefit.

 

Q3. Is GST on insurance high compared to other services?

Yes, at 18%, it is relatively high. That’s why insurers advocate for a lower rate, not complete exemption.

 

Q4. Could health insurance get special treatment?

Possibly. Policymakers may consider reducing GST on health and senior citizen policies to boost affordability.

 

Q5. How will this impact government revenue?

It could lead to significant losses in GST collections, affecting public spending programs.

 

Conclusion

 

The proposal to introduce nil GST on insurance products may seem like a customer-friendly move on the surface, but it carries hidden risks. The insurance industry fears losing input tax credit, facing higher operational costs, and being forced to pass these costs onto policyholders.

 

Instead of a blanket exemption, the better approach would be lower GST rates, targeted relief for essential policies, and incentives for first-time buyers. This ensures affordability for citizens without weakening the financial backbone of the insurance industry.

 

As India looks to strengthen its financial ecosystem and expand insurance penetration, policymakers must carefully balance short-term affordability with long-term sustainability. The key lies not in “no tax” but in “smart tax reform” that benefits both insurers and customers alike.

 

NPS vs EPF vs PPF: How Much Wealth Can a 40-Year-Old Build in 20 Years

NPS vs EPF vs PPF: Are You 40 Years Old? How Much Corpus Can You Generate in 20 Years in Each Scheme?

Turning 40 is a milestone. For many, it’s the age where career is stable, income is steady, and thoughts about retirement planning become serious. You may already have some savings, but the next 20 years are critical to secure a comfortable, stress-free retirement.

In India, three popular savings and investment schemes often come into the spotlight for retirement planning: NPS (National Pension System), EPF (Employees’ Provident Fund), and PPF (Public Provident Fund). All three are government-backed, relatively safe, and designed for long-term wealth building.

But the big question is: If you are 40 years old today, how much corpus can you build in each scheme over the next 20 years?

Let’s explore in detail.

A Quick Introduction to the Three Schemes

1. Employees’ Provident Fund (EPF)

•  Meant for salaried employees working in organizations.

•  Both employer and employee contribute 12% of basic salary + DA each month.

•   Current interest rate: around 8.25% per year (announced annually by EPFO).

•   Safe, guaranteed returns.

2. Public Provident Fund (PPF)

•  Open to all individuals, whether salaried or self-employed.

•  Maximum contribution: ₹1.5 lakh per year.

•  Current interest rate: 7.1% per year, compounded annually.

•   Lock-in: 15 years, but extendable in 5-year blocks.

3. National Pension System (NPS)

•  Voluntary retirement savings scheme.

•  Open to all Indian citizens (salaried or self-employed).

•  Flexible contributions — you can invest monthly or lump sum.

•  Returns are market-linked, typically 9–11% per year (long-term average).

•  Partial withdrawal allowed, but 60% corpus can be withdrawn tax-free at 60 years; the remaining 40% must be used to buy an annuity (pension).

Assumptions for 20-Year Calculations

To make a fair comparison, let’s assume the following:

•  You are 40 years old today and want to invest regularly for 20 years (till age 60).

•   Contributions:

o EPF: Assume monthly basic salary of ₹50,000 (for simplicity). Both employer and employee contribute 12%.

o PPF: Maximum annual contribution of ₹1.5 lakh.

o NPS: Contribution of ₹50,000 per month (₹6 lakh annually), since it allows higher voluntary savings.

•              Returns assumed:

o             EPF: 8.25% fixed.

o             PPF: 7.1% fixed.

o             NPS: 10% average annual return (equity + debt exposure).

Corpus Calculation for Each Scheme

1. EPF Corpus at 60

•  Contribution: 12% of ₹50,000 = ₹6,000 per month from employee + ₹6,000 per month from employer = ₹12,000 per month total.

•              Annual contribution: ₹1.44 lakh.

•              Interest rate: 8.25% per year.

•              Time: 20 years.

Using compound interest formula for recurring contributions:

👉 At 60, your EPF corpus will be approximately ₹71–72 lakh.

This is without accounting for salary hikes. In reality, with annual increments, the contribution increases, so the final corpus may be even higher — possibly ₹90 lakh–₹1 crore.

2. PPF Corpus at 60

•              Contribution: ₹1.5 lakh annually (maximum allowed).

•              Interest rate: 7.1% per year.

•              Time: 20 years.

Future Value calculation:

👉 At 60, your PPF corpus will be approximately ₹61–62 lakh.

This corpus is 100% tax-free — no tax on investment, no tax on interest, and no tax at maturity.

3. NPS Corpus at 60

•              Contribution: ₹50,000 per month = ₹6 lakh annually.

•              Expected return: 10% average per year.

•              Time: 20 years.

Future Value calculation:

👉 At 60, your NPS corpus will be approximately ₹3.8 crore–₹4 crore.

However, there’s a key difference:

•              You can withdraw 60% tax-free (₹2.3–₹2.4 crore).

•              The remaining 40% (₹1.5–₹1.6 crore) must be used to purchase an annuity, which will pay you a monthly pension.

Insights from the Numbers

1.            EPF and PPF Are Safe, But Limited

Both schemes are designed for capital protection rather than high growth. They are government-backed, so your money is secure, but the contribution caps (₹1.5 lakh for PPF, % of salary for EPF) restrict wealth creation.

2.            NPS Offers Bigger Growth Potential

Since NPS is market-linked, it has the potential to create 3–4 times more wealth compared to EPF or PPF in 20 years. This makes it highly attractive for those starting late (at 40) and still wanting a sizeable retirement corpus.

3.            Liquidity Matters

o             EPF: Withdrawals allowed for education, home purchase, or medical emergencies.

o             PPF: Locked for 15 years, but partial withdrawals allowed from year 7.

o             NPS: Locked till 60 years, with very limited partial withdrawal allowed.

If you want flexibility, EPF scores higher. If you want discipline, PPF and NPS enforce it.

4.            Taxation Differences

o             EPF & PPF: Completely tax-free.

o             NPS: Partially taxable, since 40% must go into annuity and pension from annuity is taxable.

________________________________________

Which is Best for a 40-Year-Old?

It depends on your priorities:

•              If you are risk-averse and want safety: EPF and PPF are better, though returns are modest.

•              If you want a large retirement corpus: NPS clearly beats the others.

•              If you want balanced growth: Use all three together — EPF for salaried savings, PPF for tax-free secure growth, and NPS for aggressive long-term wealth.

A Smart Combination Strategy

Instead of choosing one, here’s how a 40-year-old can smartly combine all three:

1.            Continue EPF (if salaried) — it’s compulsory and builds a solid base. Don’t withdraw unless necessary.

2.            Max Out PPF — invest ₹1.5 lakh annually. It’s safe and tax-free.

3.            Invest Extra in NPS — depending on your risk appetite, allocate more funds here. Even ₹20,000–30,000 monthly can grow into a crore-plus corpus in 20 years.

By diversifying, you get:

•              Safety + Tax-free growth (PPF, EPF)

•              High growth potential (NPS)

Conclusion

At 40, you still have 20 years — enough time to build serious wealth through disciplined investing. Here’s what happens by 60 if you stick to the three schemes:

•              EPF: ₹72 lakh–₹1 crore (tax-free)

•              PPF: ₹62 lakh (tax-free)

•              NPS: ₹3.8–4 crore (partially taxable)

That’s a combined corpus of ₹5–6 crore, enough to secure a comfortable retirement.

The lesson? Don’t ignore compounding, even at 40. By using EPF, PPF, and NPS together, you can build a retirement plan that balances safety, growth, and tax efficiency.

As they say: “The best time to plant a tree was 20 years ago. The second-best time is today.”

So if you’re 40 and wondering whether you’re late, relax. Start now, stay consistent, and let time and compounding do their work.

End 

Turning Lakhs Into Crores: The Real Power of Compounding Over 20 Years

Power of Compounding Explained: How Large a Corpus Can ₹4,00,000, ₹9,00,000, and ₹15,00,000 One-Time Investments Create in 20 Years?

When people talk about wealth creation, the phrase you’ll often hear is “power of compounding.” But what does it really mean? Is it just a financial buzzword, or is there a real magic behind it?

To put it simply, compounding is like planting a tree. You sow a seed today, water it, and let time do its work. With patience, that tiny seed grows into a big tree, bearing fruits and shade. The same happens with your money: invest it wisely, and with time, your wealth multiplies many times over.

Now, let’s make it real with numbers. Suppose you put aside one-time lump sum investments of ₹4,00,000, ₹9,00,000, and ₹15,00,000 and just let them grow for 20 years. How much could they turn into?

Let’s break it down.

Understanding Compounding in Simple Words

Before jumping into calculations, here’s a quick explanation.

• Simple Interest grows only on the original amount you invest (the principal).

• Compound Interest grows on both the principal and the interest earned.

That means your money is not just working for you — the interest you earn also starts working. It’s like money giving birth to more money.

Formula (for those who like math):

A=P(1+r/n)ntA = P (1 + r/n)^{nt}A=P(1+r/n)nt

Where:

•              A = Amount after time

•              P = Principal (initial investment)

•              r = Annual interest rate

•              n = Number of times interest is compounded per year

•              t = Time in years

For simplicity, let’s assume annual compounding at an average return rate of 10% per year (a realistic long-term expectation from equity mutual funds or stock markets).

Scenario 1: ₹4,00,000 One-Time Investment

If you put ₹4,00,000 today and let it grow for 20 years at 10% annually:

A=4,00,000(1+0.10)20A = 4,00,000 (1 + 0.10)^{20}A=4,00,000(1+0.10)20 A=4,00,000×6.727A = 4,00,000 \times 6.727A=4,00,000×6.727 A≈₹26.9lakhA ≈ ₹26.9 lakhA≈₹26.9lakh

👉 So, your ₹4 lakh grows to nearly ₹27 lakh in 20 years.

That’s almost 7 times your money without lifting a finger.

Scenario 2: ₹9,00,000 One-Time Investment

Now, let’s say you invested ₹9,00,000 instead.

A=9,00,000(1+0.10)20A = 9,00,000 (1 + 0.10) ^{20}A=9,00,000(1+0.10)20 A=9,00,000×6.727A = 9,00,000 \times 6.727A=9,00,000×6.727 A≈₹60.5lakhA ≈ ₹60.5 Lakha≈₹60.5lakh

👉 Your ₹9 lakh grows to about ₹60.5 lakh in 20 years.

Notice how the growth isn’t just proportional. You’re giving your money more time and base to compound, so it grows significantly bigger.

Scenario 3: ₹15,00,000 One-Time Investment

Now, let’s take a larger amount — ₹15,00,000 invested once.

A=15,00,000(1+0.10)20A = 15,00,000 (1 + 0.10)^{20}A=15,00,000(1+0.10)20 A=15,00,000×6.727A = 15,00,000 \times 6.727A=15,00,000×6.727 A≈₹1crore(₹1.01croreapprox.)A ≈ ₹1 crore (₹1.01 crore approx.)A≈₹1crore(₹1.01croreapprox.)

👉 Your ₹15 lakh grows into ₹1 crore in 20 years.

This is the true power of compounding. That one-time investment creates a crore-plus corpus without you having to invest again.

Compounding: The Silent Multiplier

At first glance, the numbers may seem straightforward. But the real magic lies in how money snowballs over time.

Take a look at this rough 10% growth projection:

Year        Value of ₹4,00,000          Value of ₹9,00,000          Value of ₹15,00,000

1             ₹4.4 lakh              ₹9.9 lakh              ₹16.5 lakh

5             ₹6.4 lakh              ₹14.5 lakh           ₹24.1 lakh

10           ₹10.4 lakh           ₹23.4 lakh           ₹39 lakh

15           ₹16.7 lakh           ₹37.6 lakh           ₹62.6 lakh

20           ₹26.9 lakh           ₹60.5 lakh           ₹1.01 crore

See the jump? The last 5 years alone add massive value. That’s because the larger your money gets, the faster it grows — like a snowball rolling downhill.

Why Time is the Most Important Factor

There are two secrets to compounding:

1. The Rate of Return (higher returns grow faster, but involve more risk).

2. Time (the longer you leave your money untouched, the bigger it gets).

Of the two, time is the most powerful. Even a modest return rate, given enough time, can create wealth beyond imagination.

For example:

• At 10% growth in 10 years, ₹15 lakh becomes only ₹39 lakh.

• But in 20 years, it becomes over ₹1 crore.

That’s more than double the wealth in just 10 more years, thanks to compounding.

Why Lump Sum Investments Work Well

Most people prefer monthly SIPs (Systematic Investment Plans), which are excellent for discipline and consistency. But lump sum investments have their own advantages:

1.Immediate Compounding: Since you put in a big amount upfront, compounding starts on the whole amount from Day 1.

2.Simplicity: No need to track monthly installments — just invest once and forget.

3.Windfall Gains: Great option if you receive a bonus, inheritance, or property sale money.

Of course, lump sum investing requires you to have that much capital ready, which isn’t always possible.

But What About Inflation?

Now, here’s the reality check: while your investment grows, so does the cost of living. ₹1 crore today won’t have the same purchasing power 20 years from now.

If inflation averages 6% per year, your money’s value halves roughly every 12 years.

So while ₹1 crore sounds like a lot today, in 20 years it may feel closer to ₹30-40 lakh in today’s terms.

That’s why financial planners suggest investing more or choosing higher-return assets like equity mutual funds for the long haul.

Practical Tips for Making the Most of Compounding

1. Start Early: The earlier you start, the bigger your wealth will grow. Even small investments made in your 20s can beat larger investments made later.

2. Stay Patient: Don’t withdraw midway. Breaking compounding is like chopping a tree before it bears fruit.

3. Reinvest Earnings: Always reinvest dividends, bonuses, or interest to maximize growth.

4. Diversify: Don’t put all your money into one asset. Mix equity, debt, and safe options like PPF or FDs.

5. Review Periodically: Ensure your money is beating inflation; adjust investments if needed.

The Takeaway

So, how much can one-time investments grow in 20 years at 10%?

•              ₹4,00,000 → ₹26.9 lakh

•              ₹9,00,000 → ₹60.5 lakh

•              ₹15,00,000 → ₹1.01 crore

This is the power of compounding — quiet, steady, and unstoppable.

The lesson? Don’t underestimate the power of starting early, staying invested, and letting time do the heavy lifting. Even if you can’t invest big amounts today, small beginnings, if left to grow, can create life-changing wealth.

Remember the words often attributed to Albert Einstein: “Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn’t, pays it.”

So, the best time to start planting your financial tree was yesterday. The second-best time is today. 🌱💰 

16 Financial Transactions That Can Put You on the Tax Department’s Radar

16 Transactions the Tax Department Tracks Through SFT – Report Them to Stay Safe

 Every year, banks and financial institutions have to share details of certain financial transactions with the Income Tax Department. This report is called the Specified Financial Transaction (SFT) return.

 

The SFT is linked to your PAN, which means the tax department can match your financial activity with the income you declare in your ITR. If there’s a mismatch, you may get a notice and even face penalties or prosecution.

 

Example:

 

If you declare an annual income of ₹2 lakh but buy gold worth ₹14 lakh, the tax department will want to know where the money came from.

 

A person who forgot to mention ₹25,000 interest income in his ITR was caught because banks reported it under SFT.

 

A businessman who sold land but didn’t show the capital gains in his ITR was caught through SFT data, and faced penalty plus prosecution.

 

How SFT Helps Track Transactions

 

Banks, mutual funds, registrars, and other financial entities report your high-value transactions to the IT department.

 

This data gets automatically filled into your Annual Information Statement (AIS), which you can view before filing your ITR.

 

By checking your AIS, you can ensure that your ITR matches what the tax department already knows about your finances — avoiding mistakes, delays, or penalties.

 

Key Takeaway

 

Always cross-check your AIS while filing ITR. If you miss reporting income or a transaction, chances are the tax department already knows through SFT. Reporting it correctly keeps you safe from scrutiny and legal trouble.

16 Transactions That the Tax Department Tracks via SFT

 

Every time you do a high-value transaction, your bank, mutual fund, or other financial institution is required to report it to the Income Tax Department through Specified Financial Transactions (SFT). These details are automatically reflected in your Annual Information Statement (AIS).

 

Here’s the list of transactions you should be careful about:

 

Buying bank drafts, pay orders, or banker’s cheques with cash – if you spend ₹10 lakh or more in a year.

 

Buying RBI prepaid instruments (like prepaid cards or wallets) with cash – if the total is ₹10 lakh or more in a year.

 

Cash deposits into current accounts – if deposits across all your current accounts add up to ₹50 lakh or more in a year.

 

Cash withdrawals from current accounts – if total withdrawals are ₹50 lakh or more in a year.

 

Cash deposits into savings accounts or other accounts (except current account or FDs) – if deposits are ₹10 lakh or more in a year (reported by banks, co-op banks, or post offices).

 

Cash received for sale of goods or services – if over ₹2 lakh in a year (applies to businesses covered under tax audit).

 

Cash payment towards credit cards – if ₹1 lakh or more in a year.

 

Non-cash payment towards credit cards – if ₹10 lakh or more in a year (via cheque, transfer, etc.).

 

Fixed deposits (time deposits) – if you put ₹10 lakh or more in a year (excluding renewals). Reported by banks, post office, NBFCs, and Nidhi companies.

 

Buying bonds or debentures – if you invest ₹10 lakh or more in a year.

 

Buying company shares (including share application money) – if ₹10 lakh or more in a year.

 

Company buyback of its own shares – if ₹10 lakh or more in a year.

 

Investing in mutual fund schemes – if ₹10 lakh or more in a year (excluding switching between schemes).

 

Buying or selling property – if the transaction value is ₹30 lakh or more (as per actual value or stamp duty valuation).

 

Buying foreign currency (or loading forex cards, traveller’s cheques, drafts, etc.) – if transactions add up to ₹10 lakh or more in a year.

 

Spending abroad in foreign currency (using debit/credit card, traveler’s cheques, etc.) – if expenses add up to ₹10 lakh or more in a year.

 

Key takeaway: If you cross these thresholds, the tax department already knows. Always match your ITR with your AIS to avoid notices, penalties, or even prosecution.

What Happens If You Don’t Report Income Shown in SFT and AIS?

 

The Specified Financial Transactions (SFT) data reported by banks, mutual funds, property registrars, and other entities gets auto-filled into your Annual Information Statement (AIS). The Income Tax Department cross-checks this with the income you declare in your ITR.

 

If there’s a mismatch, or if you fail to report these incomes, here’s what could happen:

 

1. You May Get a Tax Notice

 

If high-value transactions appear in your AIS but are missing in your ITR, the department can send you a notice. You may be asked to explain the source of funds or file a revised return (ITR-U) if you missed reporting.

 

2. Your Case May Go Into Scrutiny

 

If your ITR doesn’t match the SFT data, or if you haven’t filed an ITR at all, or if your reply to a notice is unsatisfactory, the tax authorities may select your case for detailed scrutiny.

 

3. Penalty for Misreporting Income

 

If the authorities find that you’ve under-reported or misreported income, they can raise additional tax demands with interest. On top of that, they can impose a penalty ranging from 50% to 200% of the extra tax payable.

 

4. Possible Prosecution (Jail Term)

 

In serious cases of willful tax evasion, prosecution can be launched:

 

If tax evaded exceeds ₹25 lakh → Rigorous imprisonment of 6 months to 7 years, plus fine.

 

Other cases of concealment/misreporting → Jail for 3 months to 2 years, plus fine.

 

5. Relief in Some Cases

 

Not all cases go straight to prosecution. Taxpayers may get relief under compounding provisions — subject to conditions and approval from the tax authority. This means penalties may be settled without jail, but only if the department allows it.

 

 Bottom line: The tax department already has your data through SFT. Always cross-check your AIS before filing your ITR and ensure full disclosure. Missing or mismatching information can not only cost you extra tax and penalties but in extreme cases, even land you in jail.

New GST Reforms Promise Clarity on Taxes and Cheaper Cars

 “New GST Overhaul to Simplify Taxes and Cut Disputes; Automobiles Likely to Get Relief”

 GST Revamp to Simplify Taxes, Automobiles and Essentials to Benefit

 

New Delhi: Businesses may finally get relief from confusing courtroom battles over GST rates on everyday products — like the famous disputes over whether parathas or popcorn should be taxed differently. The government’s plan to move to a simpler two-rate GST system aims to end such bizarre disputes.

 

The revamp will also bring cheer to the automobile sector. Small cars are likely to move from the current 28% tax slab to 18%, while bigger cars may shift to a new 40% slab. But even for higher-end models, the overall tax burden will fall once the extra compensation cess of 17–22% on automobiles is phased out.

 

The GST Council’s Group of Ministers on tax rate rationalisation, headed by Bihar Deputy Chief Minister Samrat Chaudhary, will meet in New Delhi this Wednesday and Thursday to examine the Centre’s proposal. Officials said the agenda is “exhaustive,” with a focus on streamlining the entire GST framework.

 

Under the new structure, there will be two main rates: one for essential items and another standard rate for everything else. All food items — whether packaged or loose — will likely fall into the 5% category, officials said. The guiding principle will be simple: if a product is essential, it will either be exempt or taxed at 5%; non-essentials will fall under the standard rate.

 

Currently, packaged food is taxed at 12%, while unpackaged food is at 5% — a difference that has led to confusion for both businesses and consumers. Attempts to clarify this under the existing system have only made things more complicated.

GST Relief to Boost Spending and End Bizarre Tax Disputes

 

In the past, GST rules have often baffled both businesses and consumers. Last year, the GST Council clarified that popcorn would be taxed at 5% if sold loose, 12% if packaged and labelled, and 18% if caramelised — sparking widespread criticism.

 

Similarly, in 2020, the Karnataka tax authority ruled that packaged parathas — which require heating before eating — should be taxed at 18%, unlike rotis which attract 5% GST. Though this order was later annulled on technical grounds, the actual rate question remained unresolved.

 

Even papads stirred controversy. Social media once claimed that only round papads were tax-free while square ones were not. The CBIC later clarified that all papads are exempt from GST, regardless of shape or name, except when served in restaurants, where normal restaurant food tax applies.

 

A Fresh Start With GST Revamp

 

Officials say such confusing disputes will finally end with the proposed GST restructuring. The new system, which reduces the current four slabs (5%, 12%, 18%, 28%) into a simpler two-rate structure, will eliminate much of the ambiguity.

 

“The proposed GST overhaul is a positive step. It will end classification-related disputes and give a strong push to consumer demand at a time when exports are facing global challenges,” said M. S. Mani, Partner, Indirect Taxes at Deloitte India.

 

Why Businesses Are Hopeful

 

Experts point out that disputes arise because companies naturally want their products placed in lower tax slabs, while tax officers often push for higher ones. This tug-of-war has affected items like auto parts, cosmetics vs. medicated products, and flavoured milk. With only two slabs, the scope for such arguments will sharply reduce.

 

Karthik Mani, Partner – Indirect Tax at BDO India, added: “A two-rate structure will reduce disputes significantly. While it may create some cases of inverted tax structure, the government has already said correcting this imbalance is part of the reform plan.”

 

 Bottom line: The GST revamp isn’t just about cheaper goods — it’s about ending years of confusion, restoring business confidence, and giving a timely boost to consumer spending.Relief to automobiles

 

Fewer GST Slabs to Ease Automobile Taxes

 

As part of the proposed GST revamp, high-end cars — which currently face 28% GST plus an additional cess of 17–22% — will move to a single 40% GST slab without cess. According to officials familiar with the discussions, this will actually lower the overall tax burden on these vehicles.

 

This category includes:

 

Cars with 1200–1500 cc engines, up to 4 metres in length (currently 17% cess)

 

Cars with 1200–1500 cc engines, above 4 metres (20% cess)

 

SUVs with 1500 cc+ engines, above 4 metres (22% cess)

 

At present, the total tax on these ranges from 45% to 50%. Under the new system, it will be streamlined to 40% flat. Experts note that while sales volumes in this segment aren’t very high, the clarity and lower burden will benefit both buyers and manufacturers.

 

On the other hand, small cars are set to get even bigger relief. Vehicles currently in the 28% slab but with a small cess of just 1–3% — such as:

 

Petrol, CNG, and LPG cars with engines up to 1200 cc and under 4 metres (1% cess)

 

Diesel cars up to 1500 cc and under 4 metres (3% cess)

 

These vehicles currently face a tax burden of 29–31%, but will likely shift down to the 18% GST slab. Analysts say this will make small cars significantly cheaper, giving a much-needed push to automobile sales, which have only grown by 2.79% this fiscal year.

 

 In short: Bigger cars will get simplified taxes and slightly lower rates, while smaller cars could see major relief, making them more affordable for middle-class buyers.

GST Overhaul: 40+ Stocks That Could Gain Big From Rate Cuts

 GST Revamp: Over 40 Stocks Poised to Benefit, Say Experts – Check the Full List

 

Prime Minister Narendra Modi’s Independence Day announcement that India will overhaul GST by Diwali has set Dalal Street buzzing. Analysts are calling it the biggest indirect tax reform since GST was first rolled out in 2017.

 

The government plans to simplify the current four-tier GST system into just two key rates – 5% and 18% (excluding sin goods). This means:

 

Almost all items taxed at 12% will move down to 5%.

 

A large share of goods currently at 28% will shift to 18%.

 

Brokerages estimate this could cut retail prices by 4–5%, giving households relief and driving higher consumption. The Finance Ministry expects a revenue impact of about ₹50,000 crore, which it considers manageable.

 

Sectors and Stocks in Focus

 

Automobiles: Two-wheelers, small cars, and commercial vehicles could see a major boost as GST on them drops from 28% to 18%. Winners include Bajaj Auto, Hero MotoCorp, TVS Motor, and Eicher Motors.

 

Cement: A cut from 28% to 18% could lower prices by nearly 8%. Analysts expect a ₹20,000–25,000 crore revenue hit for the government, but a big sentiment lift for the sector.

 

Consumer Durables: Products like air conditioners and large appliances will get cheaper, giving companies like Voltas, Blue Star, Havells, and Dixon Technologies a boost.

 

Banks & Financials: With lower taxes encouraging spending, credit demand may rise. ICICI Bank, HDFC Bank, and IDFC First Bank are expected to benefit.

 

Brokerages like Motilal Oswal, Jefferies, and Emkay Global believe these changes could also help bring down inflation by 0.5–0.6 percentage points annually, provided the government manages the revenue gap well.

 

The Big Picture

 

GST Rate Cuts: Over 40 Company Stocks Set to Gain

Prime Minister Narendra Modi’s Independence Day announcement on a new GST structure has given the stock market a big push. Investors are excited because this could be the biggest tax reform since GST began in 2017.

The plan is to replace the complicated four-slab GST system with just two main rates – 5% and 18% (except for sin goods like liquor and tobacco). This means many everyday items and big-ticket products will get cheaper:

• Goods currently taxed at 12% will mostly drop to 5%.

• Most products in the 28% slab will come down to 18%.

For families, this could mean 4–5% lower prices on several things they buy. For companies, it means more people spending, which is great for business.

Who Stands to Benefit?

• Automobiles – Two-wheelers, small cars, and trucks may get cheaper. Big winners: Bajaj Auto, Hero MotoCorp, TVS Motor, Eicher Motors.

• Cement – Prices may fall by around 8%, which is a huge positive for the sector.

• Consumer Durables – Products like air conditioners, big TVs, and appliances could see lower taxes, helping companies such as Voltas, Blue Star, Havells, and Dixon Technologies.

• Banks – With people spending more, loan and credit demand may rise. Likely gainers: ICICI Bank, HDFC Bank, IDFC First Bank.

Experts also believe cheaper goods could help reduce inflation slightly (by about 0.5%).

The Bottom Line

More than 40 listed companies across different sectors are expected to benefit once the new GST slabs are rolled out. The final approval is expected by the GST Council around the third quarter of FY26.

 

Cars, ACs, and TVs to Get Cheaper: Full List of Items Under New GST Cuts

"Cars, ACs, and TVs May Soon Cost Less: Here’s the Full List of Items That Could Get Cheaper with New GST Cuts"

For India’s middle class, where even a small shift in tax rates can make a big difference to household budgets, Prime Minister Narendra Modi’s latest announcement comes as good news. The government is planning to simplify the Goods and Services Tax (GST) system by reducing the current four tax slabs of 5%, 12%, 18%, and 28% into just two — 5% and 18%. A separate higher tax will still apply to luxury and harmful products like tobacco.

 

For everyday consumers, this move could mean real savings. Prices of essential goods and big purchases alike are expected to drop. Items such as clothes and textiles, farm equipment, auto parts, healthcare services, insurance products, and even daily-use items in FMCG and retail could all become more affordable.

This isn’t just a small tax adjustment — it’s a major reset that could boost demand, improve household confidence, and give a push to consumption-driven growth.

 

On Wednesday, Finance Minister Nirmala Sitharaman is set to address a key meeting of the Group of Ministers (GoM) from various states, where she will make a strong case for the sweeping GST reforms.

 

“The aim is to present the Centre’s perspective on the reform plan. Even though the Union Finance Minister is not formally part of the GoM, her presence and remarks will help members better understand the Centre’s thinking and vision behind the proposal,” a government source told The Times of India. List

What Could Get Cheaper Under the New GST Regime?

If the proposed GST reforms go through, households can expect relief on several essentials as well as big-ticket purchases. Here’s a look at the key items:

•              Small Cars: Tax rate cut from 28% to 18%

•              Insurance Premiums: Down from 18% to 5% or even zero

•              Daily-use Essentials: From 5% to zero

•              Air Conditioners: From 28% to 18%

•              Televisions: From 28% to 18%

Everyday Items Likely to Shift to the 5% Slab (as per ANI)

•              Tooth powder

•              Bhujia, namkeen, potato chips

•              Ketchup, jam, mayonnaise

•              Packaged juices

•              Pasta, noodles

•              Butter, condensed milk, ghee, cheese

•              Milk-based beverages

Why This Matters

Lower GST rates don’t just mean cheaper prices for consumers. They could set off a chain reaction — reducing logistics costs, simplifying compliance for businesses, and lifting demand for goods that are highly price-sensitive. More demand could, in turn, create jobs.

And at a time when global trade is facing uncertainty due to Trump’s new tariff hikes, India’s move could also make its exports more competitive in international markets.