The GST Council on Wednesday approved a two-tier rate structure of 5 per cent and 18 per cent, which will be implemented from September 22.
Bihar Deputy Chief Minister Samrat Choudhary, who holds the finance portfolio, said that all states were on board for the rate rationalisation, and it was a consensus-based decision.
Prime Minister Narendra Modi said that wide-ranging reforms approved by the GST Council will improve lives of citizens and ensure ease of doing business for all, especially small traders and businesses.
In a post on X, he said the Union government had prepared a detailed proposal for broad-based GST rate rationalisation and process reforms, aimed at ease of living for the common man and strengthening the economy.
He added, “Glad to state that the GST Council, comprising the Union and the States, has collectively agreed to the proposals submitted by the Union Government on GST rate cuts & reforms, which will benefit the common man, farmers, MSMEs, middle-class, women, and youth.”
GST tax rates on common use items ranging from hair oil to corn flakes, TVs, and personal health and life insurance policies were slashed after the all-powerful GST Council approved a complete overhaul of the tangled goods and services tax regime.
Almost all personal-use items will see rate cuts as the government looks to boost domestic spending and cushion the economic blow of the US tariffs.
Briefing reporters after a marathon daylong GST Council meeting, Union Finance Minister Nirmala Sitharaman said all decisions were taken unanimously, with no disagreement with any state.
The panel approved simplifying the goods and services tax (GST) from the current four slabs — 5, 12, 18, and 28 per cent — to a two-rate structure — 5 and 18 per cent. A special 40 per cent slab is also proposed for a select few items such as high-end cars, tobacco, and cigarettes.
The new rates for all products, except gutkha, tobacco, and tobacco products and cigarettes, will be effective September 22 — the first day of Navratri, she said.
All forms of chapati and paratha will be charged nil tax, down from the current rate of 5 per cent. She said all individual life and health insurance policies will now attract nil tax in a bid to boost coverage.
While daily use food items will continue to attract nil tax rate, common use food and beverages ranging from butter and ghee to dry nuts, condensed milk, sausages and meat, sugar boiled confectionery, jam and fruit jellies, tender coconut water, namkeen, drinking water packed in 20-litre bottles, fruit pulp or fruit juice, beverages containing milk, ice cream, pastry and biscuits, corn flakes and cereals, and sugar confectionery are likely to see a cut in tax rate to 5 per cent from the current 18 per cent.
Consumer goods such as tooth powder, feeding bottles, tableware, kitchenware, umbrellas, utensils, bicycles, bamboo furniture, and combs will see rate cut from 12 per cent to 5 per cent. The rates on shampoo, talcum powder, toothpaste, toothbrushes, face powder, soap, and hair oil has been cut down to 5 per cent from 18 per cent.
Cement will cost less with the tax rate coming down from 28 per cent to 18 per cent. Petrol, LPG, and CNG vehicles of less than 1,200 cc and not more than 4,000 mm length, and diesel vehicles of up to 1,500 cc and 4,000 mm length, too, would move to 18 per cent rate from 28 per cent.
All cars larger than 1,200 cc for petrol and 1,500 cc for diesel will be charged at 40 pc, she said.
Motorcycles up to 350 cc, consumer electronics like air-conditioners, dishwashers, and TVs, too, will be taxed at lower GST of 18 per cent as against 28 per cent currently.
All automobiles above 1,200 cc and longer than 4,000 mm, as well as motorcycles above 350 cc, yachts and aircrafts for personal use, and racing cars will be attract a 40 per cent levy.
EVs will continue to be charged at 5 per cent GST.
The move to simplify the tax regime — first announced by Prime Minister Narendra Modi in his Independence Day speech — comes as India’s exports to the US face a 50 per cent tariff — the highest in the world.
The Indian economy is heavily reliant on consumption, with private consumption accounting for 61.4 per cent of the nominal GDP last fiscal.
The GST reforms are likely to boost the economy by up to 0.5 percentage points by the second year of its implementation, effectively neutralising the full impact of the US tariff, economists said.
Tobacco, gutkha, tobacco products, and cigarettes will continue to be charged at current 28 per cent plus a compensation cess till such time that loans taken to pay states for revenue loss is fully paid back, Sitharaman added.
Modi noted that he had spoken about his government’s intention to bring the next-generation reforms in GST during his Independence Day speech.
The rationalisation is expected to bring relief to people, with Union Finance Minister Nirmala Sitharaman saying that individual life insurance and health policies will be exempt from GST.
Roti, Insurance go Tax-Free