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GST Council Rationalizes Tax Slabs
What’s the News?
- The GST Council has approved a major rationalization of the GST structure, moving from a four-tiered system to a simplified two-rate structure of 5% and 18%.
- A special 40% rate has been introduced for a limited number of "sin" and luxury goods.
- This reform is expected to make many essential and consumer goods cheaper, boosting consumption and simplifying the tax regime. Experts believe states will remain net gainers due to increased revenue from higher consumption.
GST Rate Rationalization
The new structure aims to correct the inverted duty structure and streamline the tax burden. The key changes include:
- From 28% to 18%: Many white goods and consumer electronics like air conditioners, televisions (including all LEDs/LCDs), dishwashing machines, and small cars and motorcycles (up to 350cc) have been moved to the lower slab.
- From 12%/18% to 5%: A wide range of daily essentials and processed foods will now be taxed at 5%. This includes toiletries (e.g., soap, shampoo, hair oil), bicycles, tableware, and packaged foods like namkeens, bhujia, and some dairy products.
- Nil GST: Some items like UHT milk, pre-packaged paneer, and all Indian breads (roti, paratha) are now tax-exempt. Additionally, individual health and life insurance policies, as well as several life-saving medicines and medical devices, have been exempted from GST.
- 40% Special Rate: A new highest slab has been created for certain demerit and luxury goods such as carbonated sugary drinks and high-end cars.
Additional Info
- Goods and Services Tax (GST):
- GST is an indirect, consumption-based tax levied on the supply of goods and services.
- It was implemented in India on July 1, 2017, through the 101st Constitutional Amendment Act.
- The tax system subsumed various Central and State taxes, creating a unified national market.
- GST Council:
- The GST Council is a constitutional body established under Article 279A of the Constitution.
- It is a federal forum comprising the Union Finance Minister (Chairperson) and finance ministers from all states and Union Territories.
- The Council is the key decision-making body for all matters related to GST, including tax rates, rules, and exemptions.
- Decisions are made by a three-fourths majority of the weighted votes of the members present and voting. The Centre's vote has a weight of one-third, and the states' votes have a weight of two-thirds.
- Inverted Duty Structure:
- This refers to a situation where the tax on raw materials or inputs is higher than the tax on the finished product or output.
- The new reforms aim to correct this by reducing taxes on inputs, such as those used in the man-made textile and fertilizer sectors, to promote domestic manufacturing.