TNI Digital: Union Finance Minister Nirmala Sitharaman on Wednesday chaired the 58th meeting of the Goods and Services Tax (GST) Council, beginning deliberations on the most significant reform of the indirect tax system since its launch in 2017. New rates will be applicable from September 22.
The Council approved a move towards a simpler dual-rate structure, aimed at easing compliance, lowering costs for consumers, and supporting economic growth. The new structure will replace the existing four main slabs of 5%, 12%, 18% and 28% with just two core rates, 5% for essentials and 18% for most other goods and services.
A higher 40% rate will apply to so-called “sin” and luxury goods such as tobacco, paan masala, caffeinated and carbonated drinks, high-end cars, and premium motorcycles. The fitment panel had earlier endorsed this shift, which is expected to streamline administration and reduce disputes. There will no GST on Breads, Paneer, Milk, Roti etc. As expected, the GST Council approved tax exemption on Individual Life and Health Insurance.
🔴 India approves Major GST Reforms. Boost for Consumer Sector and Healthcare. #TNI #Insight #TNIDigital pic.twitter.com/ijuTFmFm6y
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According to reports, around 175 items will see tax cuts. Everyday goods such as toothpaste, shampoo, soap, butter, cheese, snacks, and textiles will now be taxed at 5%, compared with 12–18% earlier. Consumer appliances like air-conditioners, refrigerators, washing machines, and televisions will move down to 18% from 28%. Cement will also shift to 18%, offering relief to the construction sector.
Automobiles are a key focus. Small petrol and hybrid cars up to 1,200 cc will be taxed at 18% instead of 28%, benefiting mass-market manufacturers. Two-wheelers may also see lower rates, though larger motorcycles above 350 cc could attract the 40% slab. While small electric cars may continue to enjoy concessional rates, higher-end models could face steep hikes, a move experts warn may affect India’s electric vehicle transition.
States broadly supported the reform, though some raised concerns about revenue losses. Assam and Andhra Pradesh backed the two-slab plan, while Jammu and Kashmir warned of a 10–12% revenue shortfall given its fragile post-attack economy. Karnataka, Punjab, and West Bengal sought clarity on compensation mechanisms.
Analysts estimate the changes could reduce government revenues by up to ₹1.7 lakh crore, though increased consumption may offset part of the loss. The Council is considering using the existing cess surplus to ease state concerns.
The reforms, described as “GST 2.0,” are expected to cut inflation, simplify business processes, and give a timely boost to sectors like real estate, textiles, and hospitality ahead of the festive season.
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