In a landmark decision, the GST Council has approved sweeping tax rate cuts that will take effect from September 22, coinciding with the first day of Navratri. Union Finance Minister Nirmala Sitharaman made the announcement after the 56th GST Council meeting on Wednesday. The move is being hailed as the biggest reform in the GST regime since it was rolled out across India on July 1, 2017. Sitharaman said the reforms have been carried out with a focus on the common man, and in most cases, tax rates have come down drastically. "I think it will have a very positive impact on the GDP," Sitharaman said when asked about the impact of rate rationalisation on GDP growth.
From four slabs to two
Until now, GST was levied under four slabs of 5 per cent, 12 per cent, 18 per cent and 28 per cent. The Council has scrapped the 12 per cent and 18 per cent brackets, replacing them with a simplified two-tier system of 5 per cent and 18 per cent. Officials said this change will reduce confusion, improve compliance and make the system easier for businesses and consumers alike.
Special rate for luxury and sin goods
Alongside the simplification, the GST Council has also introduced a new de-merit rate of 40 per cent for luxury and sin goods. This ensures that while essential and common-use items get relief, premium products and items considered harmful to health will continue to attract higher levies. Notably, a sin good is a product that the government considers harmful to health, society, or the environment, and therefore taxes it at a higher rate to discourage its consumption. These goods are usually non-essential and addictive in nature.
Sin goods including pan masala, gutka, cigarettes, and chewing tobacco will now attract 40 per cent GST, which will be levied on retail prices instead of ex-factory prices. The 40 per cent GST rate will also apply to products containing tobacco or reconstituted tobacco meant for inhalation without combustion, as well as items with tobacco or nicotine substitutes designed for inhalation without burning.
List of sin goods under 40% GST slab:
- Pan masala
- Gutka
- Cigarettes
- Bidi
- Chewing tobacco
- Tobacco products
- Carbonated beverages
- Caffeinated drinks,
- Cigars, cheroots, cigarillos of tobacco or of tobacco substitutes
- All types of aerated water
Other products under 40% GST slab:
- Helicopters
- Yachts
- Motorcycles with an engine capacity above 350 cc
- Mid-size and large cars (Vehicles exceeding 1500 cc or length exceeding 4000 mm)
Amit Shah lauds PM Modi for GST reforms
Union Home Minister Amit Shah lauded Prime Minister Narendra Modi for the GST reforms and called it a "historic decision" to cut tax rates. Shah said that the GST reforms will bring "huge relief" to the poor, middle class, farmers, MSMEs, women and youth. Sharing an X post on Wednesday, Amit Shah wrote, "PM Narendra Modi Ji stands for what he commits. This historic decision of GST rate cuts and process reforms will bring huge relief to the poor and middle class, while also supporting farmers, MSMEs, women and youth." The Union Minister also hailed the GST Council's decision to introduce a simplified Goods and Services Tax (GST) registration scheme.
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