GST Council clears two rate structure, bonanza for households, 40% rate on sin and ultra luxury goods

In a bonanza to households ahead of the festive season, the Goods and Services Tax Council on Wednesday approved a dual rate structure of 5% and 18% for the indirect tax levy, leading to plethora of goods and services becoming cheaper. The new rates will be implemented from September 22 ahead of Navratri and Diwali festivals.
 
The decision was taken at a meeting of the GST Council chaired by Union Finance Minister Nirmala Sitharaman and follows the announcement by Prime Minister Narendra Modi in his Independence Day speech where he said the next generation GST reforms would come in by Diwali.
 
“The PM set the tone for the next generation reforms on August 15 when he spoke at the Red Fort and he desired we give the benefit to the people at the earliest. This reform is not just on rationalising rates, it’s also on structural reforms and ease of living. We have corrected inverted duty structure, we have resolved classification issues and we have ensured predictability and stability of GST,” said finance minister Nirmala Sitharaman in a late evening briefing.
 
Rate rationalisation has been done with a two slab structure and the compensation cess has been done away with, she said, adding that there is a complete reduction in common man and middle class items from 12% and 18% slab to 5%. These include hair oil, soap bar, shampoo, bicycle, toothbrushes, tableware, kitchen ware and all household items.
 
Reduction of GST from 5% to nil include items such as ultra high temperature milk, paneer and all Indian breads such as chapatis, rotis and parathas. Namkeens, gujiya, sauces, pasta, chocolates, noodles, butter ghee will be taxed at 5%. Air conditioner machines, TVs over 32 inches, dishwashers, small cars, motor cycles equal to or less than 350 cc will all now be taxed at 18%.
 
Under the new structure, the current rates of 12% and 28% will be done away with while the compensation cess will also come to an end. A rate of 40% will be levied on specified sin and super luxury goods including pan masala, cigarette, gutkha, chewing tobacco, zarda. All carbonated drinks, and non alcoholic beverages will also be taxed at 40%. Mid sized and large cars, motorcycles above 350 cc, helicopters for personal use, yacht and other vehicles for pleasure and sports will be at 40%.
 
GST will be levied on the retail sale price on cigarettes pan masala, zarda, and chewing tobacco.
 
Meanwhile, in the insurance sector, all individual life insurance policies will be exempt from GST to make insurance affordable for common man. All individual health insurance policies will also be exempt from GST as well as reinsurance.
 
These reforms have been carried out with a focus on the common man. In most cases, the rates have come down drastically. The key drivers of economy have been given a prominence –labour intensive, pharma, health care.
 
The move is expected to give a boost to consumption demand in the country and support manufacturers at a time when the US has levied a 50% tariff on Indian exports, casting concerns over domestic growth going ahead.
 
Handicrafts and textiles are now to be taxed at 5% and cement at 18%. 33 life saving medicines will have nil tax on them. Diagnostic kits, blood glucose and spectacles will be taxed at 5%.
 
Buses, trucks and ambulances, three wheelers will also be taxed at 18% along with all auto parts.
 
The marathon meeting of the Council lasted for over 10 and a half hours as the Centre and states worked to clear the proposals and reach a consensus on the comprehensive rate rationalisation exercise.
 
The long pending inverted duty structure for manmade textile structure is being corrected by reducing the rate on manmade fibre and yarn to 5%.
 
The inverted duty problem in the fertiliser sector has also been addressed. GST has been reduced from 12% to 5% on renewable energy devices such as windmills, biogas plants, waste to energy plants and devices, solar cookers and solar water heaters.
 
An official release said the changes in GST rates of all goods except pan masala, gutkha, cigarettes, chewing tobacco products like zarda, unmanufactured tobacco and bidi, will be implemented with effect from September 22, 2025. However, pan masala, gutkha, cigarettes, chewing tobacco products like zarda, unmanufactured tobacco and bidi will continue at the existing rates of GST and compensation cess, where applicable, till loan and interest payment obligations under the compensation cess account are completely discharged.

The net fiscal implication of the move is expected at about Rs 48,000 crore based on the consumption base of 2023-24, said revenue secretary Arvind Shrivastava. 
 
“Union Finance Minister and Chairperson of the GST Council may decide the actual date of transition to the revised rates of GST approved by the Council for the above-mentioned goods,” it said.
 
Bihar Deputy Chief Minister Samrat Choudhury said that all states were on board for the rate rationalisation and it was a consensus-based decision.
 
West Bengal Finance Minister Chandrima Bhattacharya said that the total loss due to GST rate rationalisation would be Rs 47,700 crore.