GST 2.0: Tax cuts for aam aadmi, losses for states, heavy duty 40% rate for rich - expert explains impact

GST 2.0 new rates: India’s GST overhaul, coming into effect on September 22, delivers a major boost for the middle class, a sharp tax increase for luxury goods, and potential challenges for state finances. CA Nitin Kaushik explains that the revision is designed to stimulate consumption while tightening the tax net on the wealthy, but it carries trade-offs.

“The ‘loss’ story is real: some analysts estimate the new slabs could slash government revenue by up to ₹48,000 crore, though others suggest a more modest ₹3,700 crore. Either way, the shortfall is tangible, and the government is betting on increased household spending to bridge the gap,” Kaushik adds.

Luxury and sin goods now attract a hefty 40% GST. Vehicles, yachts, cigarettes, and aerated drinks fall under this high slab, with the government assuming demand will remain relatively inelastic, ensuring steady revenue.

Meanwhile, the middle class gets significant breathing space. Everyday essentials such as soaps, toothpaste, TVs, fridges, and kitchen appliances now fall under the 5% or 18% slabs, lowering costs and freeing up disposable income for shopping, EMIs, and travel. Kaushik projects inflation could ease by 0.5–1%, while household spending may rise by roughly 1% of GDP. Considering household demand accounts for nearly 60% of India’s GDP, this measure could act as a significant economic stimulus.

States, however, are bracing for losses of Rs 8,000–10,000 crore annually, raising concerns about compensation claims and potential political friction within the GST Council. The government will have to manage this shortfall carefully while keeping state finances stable.

GST tax rate revisions

Ahead of Navratri and Diwali, Finance Minister Nirmala Sitharaman-led GST Council simplified the tax regime, reducing rates on staples and consumer durables. Frozen parathas, paneer, butter, ghee, cereals, nuts, and dates now attract just 5% GST. Daily-use personal care items, including toothpaste, hair oil, and shampoo also become cheaper. Kitchenware, utensils, bicycles, and bamboo furniture see similar cuts, while TVs, refrigerators, and washing machines drop to 18% from 28%, making big-ticket purchases more affordable for households.

Even health and life insurance premiums, previously taxed at 18%, are now GST-free, lowering costs and encouraging first-time buyers to invest in coverage.

The market impact is clear. FMCG, retail, and banking sectors are likely to benefit from increased middle-class consumption, while luxury carmakers and premium brands may face pressure from reduced demand. Analysts suggest the GST overhaul could also encourage bulk purchases ahead of the festive season, giving the economy a short-term boost in consumption.

In essence, GST 2.0 is a bold policy gamble: taxing the rich more heavily, easing the financial load on the middle class, and hoping consumption-driven growth offsets revenue shortfalls. Kaushik emphasizes that the success of this reform hinges on whether increased household demand can fill the fiscal gap while keeping states and markets satisfied, making it a high-stakes experiment in balancing growth with fiscal responsibility.