In a major move, the Goods and Services Tax (GST) Council has approved a plan to reduce the number of GST rates to just two: 5% and 18%.
This change, which is expected to go into effect on September 22, will eliminate the 12% and 28% rates for most items. The decision is aimed at making everyday goods more affordable and boosting consumer spending.
The shift is part of a larger plan to simplify the GST structure, which has been criticized for being too complex since its introduction in 2017. The new system will also include a special 40% rate for luxury and “sin” goods like high-end cars and tobacco products, while keeping a 0% rate for essential items such as fresh food.
Impact on Everyday Items and Industries
The biggest effect of this change will be on the price of many common goods. Products that were previously taxed at 12% will now fall under the 5% slab, making them cheaper for consumers. This includes items like packaged food, dry fruits, and some toiletries.
Similarly, many goods that were in the 28% slab, such as air conditioners, televisions, and small cars, will now be taxed at 18%, reducing their cost. This is expected to help the consumer electronics and automotive sectors. The new rates also aim to solve the problem of “inverted duty structure,” where raw materials are taxed at a higher rate than the finished product, which was a burden for many manufacturers.
Also Read: What is Goods and Services Tax (GST)?
Changes and Potential Challenges
While most sectors will see a benefit from the new structure, some items will become more expensive. Coal, for example, will now be taxed at 18%, up from 5%. Additionally, to keep revenue steady, the government has moved some high-end items and services into the new 40% tax bracket. This will affect luxury goods and sweetened beverages.
The government believes that any short-term loss in revenue from the tax cuts will be offset by an increase in consumption. They also say the simpler tax system will make it easier for small businesses to file returns and will reduce the chance of disputes. The new rates and exemptions were approved by the GST Council with support from all states, showing a shared goal to make the tax regime more consumer-friendly and transparent.
