- The decision, taken unanimously, is being seen as one of the most significant reforms since the GST was rolled out in 2017.
- Non-essential and high-value goods will fall under the standard 18 percent rate, ensuring a broader balance between affordability and revenue.
- Commonly used items such as hair oil, soap, toothpaste, bicycles, and tableware will become cheaper, while essential products like paneer and breads have been made completely tax-exempt.
The 56th GST Council meeting, chaired by Finance Minister Nirmala Sitharaman, has approved a sweeping overhaul of the Goods and Services Tax regime, introducing a simplified two-slab structure of 5 percent and 18 percent. The decision, taken unanimously, is being seen as one of the most significant reforms since the GST was rolled out in 2017.
The changes in the slabs is expected to lead to revenue loss of Rs 93,000 crore official estimates showed.
Under the new framework, the existing 12 percent and 28 percent tax slabs will be scrapped, with most goods under those categories now moving into either the 5 percent or 18 percent bracket. Commonly used items such as hair oil, soap, toothpaste, bicycles, and tableware will become cheaper, while essential products like paneer and breads have been made completely tax-exempt. Non-essential and high-value goods will fall under the standard 18 percent rate, ensuring a broader balance between affordability and revenue.
A separate 40 percent slab has also been introduced for so-called “sin” goods, including tobacco products, gutkha, cigarettes, and pan masala. The higher rate is aimed at discouraging consumption while also helping offset revenue losses expected from the overall rate cuts.
The new rates will come into effect on September 22, just ahead of the festive season. However, the steep tax on sin and luxury items is expected to recover nearly Rs 45,000 crore. Discussions on compensating states for the shortfall remain unresolved, with some state governments raising concerns about the impact on their finances.
Industry observers say the new structure could give a much-needed boost to consumption, particularly in FMCG, automotive, and consumer appliance sectors, as reduced prices on everyday goods are expected to encourage household spending. While states and businesses prepare for the transition, the reform is being viewed as a decisive step towards simplifying India’s indirect tax system and making it more consumer-friendly.