GST Council Overhauls Tax Structure, Adopts Two-Rate System
The GST Council has approved a historic revamp of India's indirect tax system, effective September 22. The new structure primarily features two slabs, 5% and 18%, replacing the 12% and 28% rates for most goods, while introducing a new 40% slab for sin and luxury items. The changes are expected to make numerous daily essentials, food products, textiles, and fertilisers cheaper, aiming to boost consumption and economic growth. Indian stock markets rallied in response to the announcement.
Unpacked:
The 40% GST slab applies to high-end cars, tobacco products, cigarettes, and other luxury and sin goods. However, tobacco and related products will retain their current rates for now until certain loans are repaid, after which the 40% rate will be implemented.
Daily essentials and most food items will see lower GST rates, mainly at 5%. Some essentials like chapati, paneer, and certain life-saving drugs will now have a 0% GST rate, making them cheaper and more accessible for consumers.
Several states have raised concerns about potential revenue losses from the rate cuts. Despite these concerns, the GST Council reached consensus, aiming to balance revenue needs with the benefits of economic stimulus for households, MSMEs, and the overall economy.
The previous GST system had four main slabs: 5%, 12%, 18%, and 28%, plus extra cesses for luxury and sin goods. The new structure consolidates most goods into two slabs, 5% and 18%, and introduces a 40% slab for select luxury and sin items, simplifying the tax regime.