The government has reshaped the Goods and Services Tax (GST) architecture, making the earlier multi-slab system simpler with only two rates—5% and 18%.
The new rates, to be implemented from September 22, is likely to make compliance simpler, retain larger disposable income in the hands of consumers, and give an economic boost with revenue implications of approximately ₹48,000 crore.
"These reforms have multi-sectoral and multi-thematic orientation, with the objective of making the country easy to live in for all citizens and easy to do business for all," Finance Minister Nirmala Sitharaman said after the GST Council meeting that cleared the changes.
The greatest falls are in essential goods and services. Food, medicines, agricultural products, clean energy, and low-end vehicles are some of the largest gainers.
Healthcare: Individual and family medical insurance policies will now be exempt from tax. Also, 33 lifesaving medicines, including anti-cancer drugs, that had an existing 12% cess will also be exempt. Thermometers and glucometers used in the medical field have been moved to the 5% category.
Consumer Goods: Televisions, air conditioners, and motorbikes under 350cc will attract 18% GST instead of the earlier 28%. Small petrol cars up to 1200cc and diesel cars up to 1500cc also move into the 18% bracket. Larger cars and luxury vehicles remain at 28%.
Daily Essentials: Shampoo, soap, hair oil, dairy, pasta, sauces, and snacks all come under the 5% category, while bread, milk, and paneer are tax-exempt.
Agriculture & Education: Farm tool GST has been cut to 5% from 12%, while stationery for schools—exercise books, notebooks, pencils, erasers, and crayons—are also going to be less expensive with a corresponding reduction.
The Council has levied a 40% "sin tax" on cars and motorbikes over 350cc, as well as on mid-size and premium cars, and on carbonated beverages and cigarettes.
The reorganization was prompted by eight years of data showing that the 18% slab accounted for most of the GST revenue—around 67%. Conversely, the 12% range yielded only 5%, while the 5% and 28% slabs yielded 7% and 11% respectively. The Council thus axed the 12% and 28% slabs, leaving behind 5% and 18% only, which combined already constituted nearly three-fourths of the total GST collections. In 2020–21, total GST revenue totaled ₹11.37 lakh crore.
Prime Minister Narendra Modi welcomed the Council's move, writing on X:
"Had mentioned in my Independence Day Address, that we were planning to introduce Next-Generation reforms in GST. Happy to report that @GST_Council, which includes the Union and the States, has overwhelmingly endorsed the proposals made by the Union Government."
He also added, "The sweeping changes will enhance lives of our citizens and promote ease of doing business for everyone, particularly small businesses and traders."
Rolled out on July 1, 2017, at Parliament's Central Hall by then-Prime Minister Modi and then-President Pranab Mukherjee, the GST was celebrated as a historic "one nation, one tax, one market" reform. It originally had five slabs, which were subsequently reduced to four. However, critics contended that India's structure remained more sophisticated than international standards.
Small merchants and MSME entrepreneurs particularly found it challenging to deal with online filing regulations, quarterly return filing, and ambiguity arisen through various slabs. Although the majority of such challenges have declined over time, issues such as portal performance congestion during peak filing and occasional doubts regarding tax percentages have remained.
The recent reform seeks to address these issues by streamlining the system, facilitating compliance, and bringing taxation in tune with the intention of the government to foster economic growth and consumer alleviation.
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