The government approved the Goods and Services Tax (GST) Council on Wednesday as a
two-slab structure, removing the 12% and 28% slabs and slashing rates in various
essential items while putting higher levies on a few products. Sharing about this new
decision, the finance minister Nirmala Sitharaman described the move as not just rate
rationalisation but a structure-wise move.
The new rates will be applicable from 22nd September, at the beginning of Navratri.
The main purpose of this decision is to lower the tax burden on common people, boost
domestic consumption, and safeguard businesses from the impact of skyrocketing US
tariffs.
The Key Highlights
● Daily essentials will still be under the nil tax bracket. Some food and beverage items
like butter, ghee, dry fruits, biscuits, ice cream, and corn flakes will be levied a low
5% rate instead of 18%.
● Other common use items that have also witnessed a reduction to 5% from either
12% or 18% include items like soap bars, hair oil, toothpaste, toothbrush,
kitchenware, tableware, and other household goods.
● With these new rates, the tax has been cut on white goods like AC, TV, and
dishwashing machines from 28% to 18%.
● Individual life and health insurance policies, including the family floater, and 33 life-
saving drugs, which had a 12% tax, will no longer be taxed. There will be a removal
of GST on health and life insurance coverage across the nation and a reduction in
expenses.
● A huge number of medical items used regularly, like a thermometer and a
glucometer, are included in 5% tax slab.
● Motorcycles with an engine capacity under 350 cc will be included in the 18% slab.
● High-end cars, cigarettes, and tobacco will still be under a special 40% slab.
● The government has focused on providing relief to farmers, with agricultural
implements coming down from 12% to 5%.
● Additionally, the new tax slab focuses on making education affordable with the tax
on notebooks, exercise books, crayons, and erasers, and reducing it from 12% to
5%.
● For the manmade textile sector, the tax rate has been cut to 5% from 18% while the
manmade yarn is now 5% from 12%.
● The GST has been reduced in the fertilizer sector to 5% from 18%.
A Quick Go-through of the Current Tax System
The current system holds four slabs – 5,12,18, and 28%.
As reported by the GST councils, the tax collected from the 18% slabs in the last eight years
is more than two-thirds of the total GST revenue.
The 12% tax slab has the lowest, just 5% of the same period. The 5% and 28% slabs are
seven and 11% respectively.
Witnessing the insignificant revenue from the 12% and 28%, the government decided to
drop the two slabs.