To make India’s tax system simple and transparent, the government has announced historic reforms in the 56th GST Council meeting. The four tax slabs applicable till now have been reduced to only two major rates – 5% and 18%, while a special 40% slab has been introduced for luxury and harmful products or ‘sin goods’. These reforms are being considered as a big relief to the middle class and a step to promote consumption before the festive season.
The impact of these announcements will be directly seen on households, vehicle sales, insurance, health, real estate and everyday purchases. Let us understand in detail the 10 most important findings of GST reforms:
1. Two-slab indirect tax structure for most goods
Now consumers and businessmen will not have to deal with the hassle of four different GST rates. Now only two rates – 5% and 18% will be applicable across the country. Experts believe that this will make compliance easier, disputes will reduce and the tax system will become more transparent.
2. 40% tax on luxury products and ‘sin goods’
The GST Council has kept a special 40% slab from a social and health point of view. This slab will apply to cigarettes, pan masala, sugary drinks and expensive luxury products. Its purpose is to maintain revenue and discourage harmful consumption.
3. Common household items will be cheaper
Tax on everyday items like hair oil, soap, toothpaste has been reduced to 5%. This change will directly affect the pocket of every family and will give relief in consumer spending.
4. Big relief on food items
Roti-Paratha have now become completely tax-free. At the same time, milk products like cheese, ghee, butter and breakfast items like cornflakes, biscuits will now be available at only 5% GST. This is likely to reduce food inflation and give a big benefit to rural-urban consumers.
5. Promotion of affordable housing schemes
The construction sector has also got a big support. GST on cement has been reduced from 28% to 18%. This will directly affect the cost of building a house. Experts believe that this will increase the demand in real estate and give impetus to affordable housing schemes.
6. Vehicles and electronics will be cheaper
GST on petrol and diesel cars with small engines has been reduced from 28% to 18%. Not only this, many electronic products like TVs, ACs and computer monitors will also become cheaper. This decision is expected to increase the demand in the auto and consumer durable sector.
7. No GST on insurance policies now
Life insurance and health insurance policies have now been exempted from GST. This will make insurance policy premiums cheaper and it will be easier for common people to get coverage. Especially senior citizens and the middle class will get a big relief from this.
8. Double relief for the middle class
Tax cuts on insurance, vehicles, electronics and household items will leave more disposable income in the hands of the middle class. This will not only increase the spending capacity but will also strengthen the consumption-based Indian economy.
9. Boost for agriculture and rural economy
The GST Council has reduced tax on farm machinery, drip irrigation systems, sprinklers, bio-pesticides and fertiliser inputs to just 5%. This step will make modern tools and essentials more affordable for farmers, cut cultivation costs and encourage sustainable farming practices. It is expected to strengthen the rural economy and improve farmer income.
10. Dispute resolution and clarity
In the past years, there have been disputes over the tax classification of many products — like paratha and roti, paneer and cheese or popcorn and snacks. Now a uniform GST rate has been fixed on all similar products, which will reduce litigation and provide more clarity to businessmen.
Summing up…
The government has termed GST reforms “GST 2.0”. This change is not limited to just a reduction in rates, but it will simplify the system, provide relief to both consumers and industry, and strengthen the economy in the long run.
The government claims that this reform will maintain revenue balance and boost demand. At the same time, consumers are also expected to get the benefit of cheaper prices in the coming time.