GST 2.0: New Two-Slab Tax Structure Unveiled
The GST Council has taken a significant step in reforming the Goods and Services Tax (GST) structure in India. In its 56th meeting, lasting over 10 hours, the council approved a two-slab tax system of 5% and 18%. There will also be a special demerit rate of 40% for luxury items and goods considered harmful. This new structure aims to lessen the tax burden on everyday consumers, thus promoting ease of doing business in the country.
The changes will come into effect on September 22, coinciding with the start of Navratri, a significant festival in India. The Finance Minister, Nirmala Sitharaman, announced that these reforms will primarily benefit the common man, farmers, middle-class families, and small businesses. The Prime Minister expressed his satisfaction with these collective decisions made to ease the financial pressures on citizens.
The GST reforms include substantial cuts in tax rates for many essential items. Commonly used products like packaged food, medical supplies, and household goods will see a reduction in GST rates. For instance, items such as fruit juices, butter, and even medical-grade oxygen will now be taxed at a lower rate of 5%, down from 12% or 18%. This is expected to provide immediate relief to families and improve access to essential goods.
In addition, the council has streamlined the tax structure by eliminating the multiplicity of slabs—5%, 12%, 18%, and 28%—and consolidating it into just two categories. This simplification addresses long-standing issues related to the inverted duty structure, where input tax rates were higher than output tax rates, affecting cash flow for businesses.
Furthermore, the reforms will also support labor-intensive industries, agriculture, and health sectors by reducing taxes on related goods and services. Tax rates for white goods like air conditioners and televisions have been cut from 28% to 18%, making them more affordable for the average Indian consumer.
Industry leaders have welcomed these changes, expressing optimism that businesses will pass on the benefits of reduced rates to consumers. This collaborative approach between the government and the industry is expected to enhance compliance and reduce litigation, providing a stable and predictable environment for economic growth.
Overall, the GST reforms represent a significant shift towards a more efficient and equitable tax system in India, aiming to foster growth and improve the quality of life for all citizens.
