New Delhi: A sweeping reform of the Goods and Services Tax (GST) system—described by Prime Minister Narendra Modi as a “next-generation framework” during his Independence Day address—is set to bring relief to consumers by reducing the number of tax slabs and lowering rates on several goods, including daily-use products and automobiles.
According to sources, the revised structure will largely replace the current 12 and 28 per cent brackets with just two—five per cent and 18 per cent. Around 90 per cent of goods presently taxed at 28 per cent are expected to move to the 18 per cent slab, while a major portion of items under the 12 per cent bracket will be shifted to five per cent. Essential household products are likely to feature in the lower category.
A separate ‘sin tax’ of 40 per cent will apply to a limited set of items, such as tobacco products, which already attract high levies. Cigarettes and chewing tobacco, for example, are subject to GST, cess, and additional duties. On the other hand, labour-intensive and export-oriented sectors such as diamonds and precious stones will continue under the existing tax structure. Petroleum products will also remain outside the GST ambit.
The rationalisation, expected to be finalised at the GST Council meeting in September, could lead to a revenue loss of nearly ₹50,000 crore. However, the government believes the resulting boost in consumption will offset this shortfall.
Likely to Become Cheaper
Sources indicate that consumer goods such as toothpaste, umbrellas, pressure cookers, small washing machines, bicycles, readymade garments priced above ₹1,000, footwear in the ₹500–₹1,000 range, vaccines, ceramic tiles, agricultural equipment, mobile phones, computers, hair oil, processed foods, and school stationery may see reduced rates.
18 Per Cent Bracket
Televisions, refrigerators, air conditioners, washing machines, aerated drinks, and several construction materials, including cement and ready-mix concrete, are expected to fall under the new 18 per cent slab.
Impact on Automobiles
Passenger vehicles currently attract 28 per cent GST plus up to 22 per cent cess, pushing taxes on mid-size and luxury cars to 40–50 per cent. Under the new structure, with the 28 per cent category being eliminated, cars and two-wheelers are expected to shift to the 18 per cent slab, reducing prices by at least 10 per cent. Electric vehicles, meanwhile, will continue to be taxed at five per cent. Anticipating this, the Nifty Auto Index surged 4.61 per cent on Monday morning.
Boost for Growth
The proposed reform is expected to spur consumer spending and stimulate economic growth. The move also comes after global ratings agency Standard & Poor’s upgraded India’s sovereign rating to BBB from BBB- for the first time in nearly 20 years, calling the outlook stable—countering earlier criticism of India’s economic trajectory.
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