NEW DELHI: The GST Council has approved reductions in tax rates on commonly used items such as hair oil, corn flakes, televisions, and health and life insurance policies, marking a significant revamp of the Goods and Services Tax system.
The new GST rates, effective from September 22, will reduce the current four tax slabs to just two: 5% and 18%. This change comes as India prepares for the start of Navaratri.
This initiative aims to enhance domestic spending and mitigate the economic impact of US tariffs by significantly lowering tax rates on most personal use items.
Following a lengthy GST Council meeting, Union Finance Minister Nirmala Sitharaman confirmed that the changes were unanimously agreed upon, with no states voicing opposition.
The restructuring simplifies the GST framework from four slabs—5%, 12%, 18%, and 28%—to just two, with a special 40% rate reserved for certain goods like luxury cars and tobacco products.
The revised rates will take effect on September 22, applying to all items except for gutkha, tobacco and cigarettes, as Sitharaman indicated.
Daily essentials will maintain a nil tax rate, while various food and beverage items—including butter, ghee, dry nuts, sausages, and packaged drinking water—will see tax reductions from 18% to 5%. Additionally, all varieties of chapati and paratha will incur no tax, down from the previous 5% rate.
Household items like tooth powder, feeding bottles, and kitchenware will benefit from reduced rates of 5%, down from 12%. Shampoo, soaps, and hair oil will also see tax cuts, now taxed at 5% instead of 18%.
Furthermore, individual life and health insurance policies will now be tax-exempt to increase coverage accessibility.
The tax on cement will decrease from 28% to 18%, while petrol and certain vehicles under specified sizes will transition to an 18% tax rate from 28%. Larger vehicles, including cars above 1,200 cc and motorcycles above 350 cc, will incur a 40% rate.
Electric vehicles will continue to be taxed at the lower rate of 5%.
Revenue Secretary Arvind Shrivastava stated that the financial implications of these adjustments are estimated at Rs 48,000 crore, although they will be financially sustainable.
The GST Council’s decision is expected to lower overall premiums, with a significant reduction in tax burdens.
During FY24, the government collected Rs 16,398 crore from GST on healthcare and life insurance, including Rs 8,135 crore from life insurance and Rs 8,263 crore from health insurance. An extra Rs 2,045 crore was generated from re-insurance.
This tax simplification, initially announced by Prime Minister Narendra Modi, is especially timely given the steep 50% tariffs facing Indian exports to the US.
Private consumption is crucial to the Indian economy, comprising 61.4% of the nominal GDP last fiscal year. The GST reforms are projected to bolster economic growth by up to 0.5 percentage points within two years, essentially neutralizing the full effect of US tariffs on imports.
Items like tobacco, gutkha, and cigarettes will still face a 28% tax plus a compensation cess until previously incurred loans to mitigate revenue losses have been repaid, as noted by Sitharaman.
