What can we expect from the GST revamp coming in Diwali? Will cars, mobiles get cheaper?

“This Diwali, I am going to make it a double Diwali for you. The citizens will receive a big gift… We are bringing next-generation GST reforms. This will reduce the tax burden across the country. This will be a gift ahead of Diwali,” said Prime Minister Narendra Modi from the ramparts of Red Fort on India’s 79th Independence Day last Friday (August 15).

It is expected that the GST reforms will ease the burden on the common man, particularly benefiting farmers, the middle class and small businesses. Moreover, the move is being seen as many as a political masterstroke; the GST reforms will help boost the BJP’s chances in the upcoming Bihar Assembly polls where the opposition has used the lack of jobs to attack the BJP-led government. Several pundits also note that the move will bolster the PM’s image in the ongoing trade fight with Washington.

And even the markets reacted positively to Modi’s announcement. Early on Monday, the Sensex and Nifty surged ahead, buoyed by plans for big bang reforms in the GST regime by Diwali. The Sensex jumped 1,021.93 points to 81,619.59 in early trade whereas the Nifty surged 322.2 points to 24,953.50.

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But, as excitement builds around the new GST rates in the run-up to the revamp, here’s a simple guide on what is likely to change and get cheaper for the common man.

What are the current GST slabs and rates?

The Goods and Services Tax (GST) slabs and rates are currently decided by the GST Council, which comprises representatives from the governments at the Centre, states, and Union Territories.

At present, there are four main slabs under the GST regime:

1. Five per cent
2. 12 per cent
3. 18 per cent
4. 28 per cent

These four rate slabs apply to most of the goods and services across the country. Currently, zero per cent GST is charged on essential food items, medicines and education. Daily use items attract a five per cent tax while standard goods have a 12 per cent tax on them. There’s a 18 per cent GST on electronics and services whereas luxury and sin goods have a 28 per cent tax on them.

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There are also three special GST rates for these items:

1. 3 per cent GST on gold, silver, diamond and jewellery
2. 1.5 per cent GST on cut and polished diamonds
3. 0.25 per cent GST on rough diamonds

What are the changes being introduced to GST regime now?

The government plans to rationalise the GST slabs into two from the existing four slabs — one of five per cent and the other being an 18 per cent slab. This will mark the biggest indirect tax reform since GST was introduced in 2017.

As per the plans, 90 per cent of items currently being charged at 28 per cent may be moved to the 18 per cent slab. Moreover, a majority of items in the 12 per cent slab are to be moved to the five per cent slab.

According to reports, there will also be another third slab of 40 per cent, which will cover luxury and sin goods.

What is likely to get cheaper and costlier?

As many items in the 12 per cent slab will be moved to the five per cent slab, several products are expected to get cheaper. For instance, products such as tooth powder, toothpaste (some branded variants), soaps, hair oil will get cheaper. Also processed foods, snacks, frozen vegetables, condensed milk are likely to cost lesser after the changes.

Mobile phones, computers, sewing machines, pressure cookers, geysers, irons and vacuum cleaners are also likely to get cheaper. Readymade garments costing above Rs 1,000 and footwear in the Rs 500-1000 range will also get more affordable for the common man. Cookware and utensils along with Ayurvedic medicines are also expected to become inexpensive. Air conditioners are also likely to get cheaper.

Insurance, which currently attracts 18 per cent GST, is also expected to be cheaper. Government sources have been quoted as saying that GST on health and life insurance premiums may also be lowered to five or even zero per cent.

It is also expected that the GST on small cars will reduce, making them more affordable. A source also told Moneycontrol that cars with higher engine capacity that attract a 28 per cent GST and additional levy of up to 22 per cent — resulting in total taxes of about 50 per cent — may come under a new special rate of 40 per cent.

There’s also a chance that buying houses may get cheaper as a result of the change. Pradeep Aggarwal, founder and chairman, Signature Global (India), told Hindustan Times, “The housing sector stands to benefit from these reforms, as moving to a two-slab structure will not only make GST compliance easier for real estate developers, but also help rationalise input costs, improve cash flows and eventually reduce the cost of homes for buyers.”

However, there’s bad news for smokers and gamers. The government is planning to impose a 40 per cent GST on tobacco products. Currently, tobacco and related products, including cigarette, cigars, paan masala cigarillos and hookah, face 28 per cent GST plus other taxes, amounting to a total of 53 per cent tax.

Online gaming is also expected to attract a 40 per cent GST under the proposed changes. If finalised, it will cause a huge blow to online gaming companies such as fantasy sports, which currently have a 28 per cent GST levied on them.

The reason for the high GST on online gaming comes amid concerns due to the amount of money being spent on these platforms. Also, many have pointed to the amount of time being spent on these platforms.

What would be the impact of such a move?

Officials note that such changes to the GST slabs could initially lead to a short-term revenue dip. However, the government is confident that higher consumption, as a result from lower effective tax rates, will offset the revenue loss in the months.

The changes will also help eliminate quirky disputes. For instance, under the current system, packaged food items are taxed at 12 per cent, while unpackaged ones attract a five per cent tax. This has led to confusion among consumers.

Now, we will have to wait until Diwali to see what changes does the GST Council announce. Will it truly be a Diwali Dhamaka?

With inputs from agencies