The Finance Minister, Nirmala Sitharaman, has announced new GST rates, highlighting a major shift towards a simplified two-tier tax rate structure. According to her, this new system will effectively benefit the common man. The GST Council has introduced a two-tier structure of 5% and 18%, replacing the earlier four-tier framework of 5%, 12%, 18%, and 28%.
The revised GST rates will come into effect from September 22.
For common and middle-class items, there is a complete rate reduction from 18% and 12% to 5%. All essential household and middle-class items will now fall under the 5% slab. Regular household items such as toothbrushes, soap, hair oil, toilet bars, and tableware will be taxed at 5%. UHT milk, dairy products, and other essential food items will attract nil (0%) GST.
The 56th Goods and Services Tax (GST) Council Meeting, held on Wednesday, lasted for 10.5 hours and focused on potential rate reductions and category adjustments across various goods and services.
This structural change is aimed at simplifying the tax regime, transitioning from the older four-tier system (5%, 12%, 18%, and 28%) to a streamlined two-tier system (5% and 18%).
In contrast, luxury items, tobacco, cigarettes, and tobacco products including gutkha will witness a 40% increase in tax rates. However, these new rates for tobacco-related items will be implemented after September 22.
All essential food items will remain tax-free, while several processed food products will see a rate reduction from 18% to 5%. This includes butter, ghee, dry nuts, condensed milk, and sausages.
Importantly, the tax rate on all types of parathas and roti will be reduced from 5% to nil, offering additional relief to consumers.
These modifications to the GST structure are seen as crucial steps to boost domestic consumption and support businesses, especially in light of the recent increase in import duties by the U.S. to 50% on Indian products.
In his Independence Day speech, Prime Minister Narendra Modi had hinted at upcoming GST reforms and rate cuts. Following the GST Council meeting, various ministers speculated that GST rate rationalisation may result in a temporary revenue deficit for the country, but emphasized its long-term benefits for economic growth and consumer welfare.