2 slabs, no GST on life & health insurance — what PM Modi's promised tax reforms may offer you

Under proposed reforms, the Narendra Modi government is expected to replace the current four slabs of goods and services tax (GST) with just two new slabs, according to CNBC-TV 18.

The government is also expected to exempt more services from the GST.

The development comes days after Prime Minister Modi announced "next generation GST reforms" in his Independence Day speech on Friday. He announced the creation of a taskforce to evaluate all current laws, rules, and procedures related to economic activities to reduce compliance costs for startups, micro, small, and medium enterprises (MSMEs), and entrepreneurs, provide freedom from fear of arbitrary legal actions, and ensure laws are streamlined for ease of doing business.

“The government will bring Next Generation GST reforms, which will bring down tax burden on the common man. It will be a Diwali gift for you,” said Modi.

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These will be new GST slabs

The CNBC-TV 18 has reported the government will reduce the four slabs that exist today (5 per cent, 12 per cent, 18 per cent, and 28 per cent) to two slabs of 5 per cent and 18 per cent. The 0 per cent slab will also exist for several goods and services.

A third slab of 40 per cent ‘sin tax’ is also proposed for a narrow category of goods and services like tobacco and tobacco products, aerated and carbonated beverages with added sugar, and online betting, as per the report.

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Separately, Moneycontrol reported that term life insurance premiums and health insurance premiums for senior citizens are expected to be exempted from GST.

Here is how these changes will affect you

Under the 5 per cent slab, everyday essentials will come, government sources told CNBC-TV 18.

All other goods will be in the 18 per cent slab except for ‘sin goods’ that will face 40 per cent tax.

This would mean that many household goods and insurance premiums that might currently be in the 12 per cent slab will fall in the 5 per cent slab. This would include packaged food, clothes, footwear, cycle, eyewear, and everyday essentials like toothpowder and snacks.

Similarly, all goods in the 28 per cent slab will fall in the 18 per cent slab, such as televisions, fridges, refrigerators, air-conditioners, two-wheelers and four-wheelers.

Medicines and medical equipment are also expected to fall from the 12 per cent slab to 5 per cent or even 0 per cent, the report said.

This would mean that most of the things for the middle class are bound to see GST rates fall. This is expected to result in lower costs of products and lower spending on these goods.