GST Council Approves Two-Tier GST Overhaul, Potential Revenue Reduction of 930 Billion Indian Rupees
Simplified GST Rates: A Consumer-Friendly Overhaul
The Goods and Services Tax (GST) regime has undergone a significant reform at the 56th GST Council meeting, chaired by Finance Minister Nirmala Sitharaman. This decision, considered one of the most significant since the GST was rolled out in 2017, is being viewed as a decisive step towards simplifying India's indirect tax system.
The reform introduces a simplified two-slab structure of 5 percent and 18 percent, replacing the existing 12 percent and 28 percent tax slabs. Most goods under the scrapped categories will now move into either the 5 percent or 18 percent bracket.
On the consumer front, the new GST rates do not affect essential products like paneer and breads, which remain tax-exempt. Additionally, commonly used items such as hair oil, soap, toothpaste, bicycles, and tableware will continue to be cheaper under the 5 percent slab. Furthermore, non-essential and high-value goods will fall under the standard 18 percent tax rate.
A separate 40 percent tax slab has been introduced for "sin" goods, including tobacco products, gutkha, cigarettes, and pan masala. The steep tax on these items is expected to recover nearly Rs 45,000 crore. The new GST rates are expected to lead to a revenue loss of Rs 93,000 crore, but discussions on compensating states for the shortfall remain unresolved.
The reform is expected to make India's GST system more consumer-friendly and could give a boost to consumption, particularly in the FMCG, automotive, and consumer appliance sectors. However, some state governments have raised concerns about the impact on their finances.
The minister leading the 56th GST Council meeting is Union Finance & Corporate Affairs Minister Smt. Nirmala Sitharaman. The new GST rates will come into effect on September 22. This overhaul marks a step towards a more streamlined and consumer-focused GST regime in India.
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