New Delhi: Two-tier GST structure approved, effective from September 22
Finance Minister Nirmala Sitharaman on Wednesday announced sweeping Goods and Services Tax (GST) rate cuts, saying the new two-tier structure of 5% and 18% will benefit the common man significantly. The announcement came after the marathon 56th GST Council meeting, which lasted over 10 hours and saw unanimous support from the Centre and states.
The simplified tax regime will replace the existing four-tier structure of 5%, 12%, 18% and 28%. A special 40% rate will continue to apply on select items such as high-end vehicles, tobacco and cigarettes. The revised rates will be implemented from September 22, coinciding with Navratri, except for gutkha, tobacco and tobacco products.
Household items see sharp reduction
Announcing the changes, Sitharaman said several everyday items have been moved into the 5% slab from the earlier 12% and 18%. These include toilet soaps, shampoos, toothbrushes, toothpaste, hair oil, bicycles, tableware, kitchenware, and shaving creams.
She also confirmed a zero tax rate on essential food items such as UHT milk, paneer, chapati, roti, paratha, parotta and other Indian breads.
Butter, ghee, dry fruits, condensed milk, sausages, sugar confectionery, biscuits, namkeens, pastries, fruit juices, ice creams and cereals will now attract 5% GST instead of 12% or 18%.Relief for healthcare and insurance
The GST Council also announced a complete exemption for all individual life and health insurance policies, including term insurance, ULIPs, endowment plans, family floaters, and senior citizen policies. Their reinsurance premiums will also be exempt.
Revenue Secretary Arvind Shrivastava called the move a “game-changer” for accessibility, saying it will bring down costs for middle-class households and improve insurance penetration in India.
Medical essentials have also seen reductions, with diagnostic kits, glucometers, corrective spectacles, thermometers, medical oxygen and reagents shifted to the 5% slab from 12% or 18%. Lifesaving drugs have been made entirely tax-free.
Major cuts in consumer durables and vehicles
The GST Council also reduced taxes on consumer appliances and vehicles. Rates on air conditioners, dishwashers, monitors, projectors and televisions above 32 inches were slashed from 28% to 18%.
For the automotive sector, petrol, diesel, LPG and CNG cars (within specified engine and length limits), motorcycles below 350cc, three-wheelers, and goods transport vehicles will now attract 18% instead of 28%.
Appliances such as refrigerators, washing machines and kitchen equipment are also expected to see price drops as rates shift to 18%.
Boost for agriculture and small industries
Agricultural and labour-intensive sectors have been given relief, with tractors, tractor parts, irrigation sprinklers, drip irrigation systems, pesticides, micro-nutrients, handicrafts, stone blocks, and leather goods all moved to the 5% slab.
This is expected to reduce farming costs and provide relief to small-scale industries and rural markets.
Fiscal impact and economic goals
The Finance Ministry estimates the rate rationalisation will cost around Rs 48,000 crore in annual revenue. However, Revenue Secretary Shrivastava stressed that the move would be fiscally sustainable. “Rate rationalisation results in buoyancy. We also expect compliance to improve,” he said.
The reforms are aimed at stimulating domestic consumption, boosting industries struggling with rising costs, and helping Indian businesses counter external challenges, including the US’s 50% import duty on Indian products.
Conclusion
The GST Council’s decision to simplify the tax structure into two primary slabs has been welcomed by both states and businesses. With a focus on lowering prices of essentials, healthcare, and consumer goods, the reforms are expected to provide immediate relief to households while strengthening the overall economy. The full impact will be closely watched when the changes take effect on September 22.