 "GST 2.0: India caps goods tax at 18%, nil or 5% on food & household items; 40% on demerit articles")
The Goods and Services Tax (GST) Council has announced next-generation tax reforms as promised by Prime Minister Narendra Modi from the ramparts of Red Fort on Independence Day. The Council has approved the centre’s proposal to streamline the indirect tax structure into a dual slab of 5 per cent and 18 per cent.
The current four-tier tax structure of 5 per cent, 12 per cent, 18 per cent, and 28 per cent will be replaced by a simplified two-rate system. Under the new model, essential or “merit” goods will be taxed at a reduced rate of 5 per cent, while the majority of goods and services will be subject to a standard 18 per cent rate.
“GST Council approves reforms with a multi-sectoral and multi-thematic focus on improving the lives of all citizens and ensuring ease of doing business for all, including small traders and businessmen,” a press release said.
PM Modi has welcomed the reforms, saying, “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.”
Meanwhile, products that are deemed harmful to society, called “sin goods” or “demerit articles”, will be subjected to a 40 per cent tax slab. It will also cover luxury goods. However, alcohol will not be included under this.
Almost all personal-use items and aspirational goods for the middle class, like AC, washing machines, will see rate cuts as the government looks to boost domestic spending and cushion the economic blow of the US tariffs.
Impact Shorts
More ShortsPremium paid for individual life insurance and health insurance (including family floater), policies too have been exempted from GST.
Briefing reporters after a marathon day-long GST Council meeting, Union Finance Minister Nirmala Sitharaman said all decisions were taken unanimously, with no disagreement with any state.
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.
With inputs from agencies
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