Government Overhauls GST, Reducing Tax Slabs to Boost Economy
The Union government has announced a major overhaul of the Goods and Services Tax (GST) system, consolidating the structure into two main slabs of 5% and 18%, and eliminating the 12% and 28% rates. The reform, effective September 22, will reduce prices on nearly 400 products, from cars to daily essentials. Finance Minister Nirmala Sitharaman described it as a "people's reform" aimed at benefiting every family, increasing consumption, and simplifying compliance for businesses, especially small and medium enterprises.
Unpacked:
The reforms aim to boost domestic consumption and support households, businesses, and farmers amid economic challenges, such as slowing global trade and recent US tariffs on Indian exports. The timing also aligns with the festive season to stimulate spending and provide relief.
Prices for nearly 400 products, including essentials like food, soaps, bicycles, and even small cars, will be reduced as many items move from higher GST slabs to 5% or 18%. Luxury and 'sin' goods will now face a special 40% rate.
SMEs will benefit from simplified compliance, such as a single monthly return, pre-filled forms, faster refunds, higher registration thresholds, quarterly filing options, and easier access to the composition scheme, reducing their administrative and financial burdens.
Fiscal analysts note a potential annual revenue loss of ₹1.1 trillion (0.3% of GDP) for the government, but believe this is manageable due to offsetting factors like surplus cess collections and higher-than-expected RBI dividends. There are also operational challenges in reclassifying products and ensuring accurate compliance.