GST Council Approves Two-slab Rate Structure

The 56th GST Council meeting, chaired by Finance Minister Nirmala Sitharaman, has discussed the “Next-gen” tax reform blueprint. The meeting deliberated on the GST reform proposal of having just two tax rates 5% and 18%, by moving products from the current 12% and 28% slab to lower rates. In additional, a new 40 per cent slab has been proposed for ‘sin goods’ like tobacco and pan masala.

Accordingly, the Council approved the rate rationalistion, from the current four slabs, to two slabs — 5 per cent and 18 per cent slabs. The change is aimed to make compliance easier and improve efficiency.

Daily Essentials To Become Cheaper

With only two slabs to be enforced now, the consumer goods currently existing in the 28 per cent slab are likely to be shifted to the 18 per cent slab. Hair oil, toilet soaps, shampoos, toothbrushes and bicycles will now attract just 5% GST, against the current 18%.Milk, paneer and Indian breads have been exempted from GST altogether, bringing their rates down from 5% to zero. Similarly, commonly used food items including ghee, nuts, 20-litre drinking water, non-aerated drinks, namkeen, certain footwear, apparel, medicines, and medical devices are likely to shift from a 12 per cent to 5% tax slab. Handicrafts as well as intermediate leather goods, now attract only 5% GST, down from 12%.

Automobiles

In the automobile sector, vehicles are currently taxed at the highest rate of 28 per cent plus a compensation cess. After the change, entry-level cars are likely to be taxed at 18 per cent, and SUVs and luxury vehicles could be subject to a special rate of 40 per cent.

Electronic Goods

The prices of electronic goods including a specific category of TV, washing machine, and refrigerator are likely to decreased due to a lowered tax rate of 18 per cent, from the current 28 per cent.

Insurance companies

The Centre also proposed exempting life and health insurance premiums from GST. At present, the premiums are taxed at 18 per cent GST. The GST cut in the premium could put the insurance companies under pressure.

While a full exemption could lower health insurance premiums by approximately 15%, even a modest 6% cut in premium under the 12% GST with input tax credit may help ease expenses for policyholders.

Construction Cost To Reduce

The GST overhaul has reduced rates on construction materials. Cement, the key ingredient in construction, will now attract 18% GST instead of the earlier 28%. Marble and granite blocks, will now attract only 5% GST, down from 12%.

Finmins of Oppn-ruled states

Meanwhile, the finance ministers of the states ruled by the opposition parties met before the GST Council meeting and agreed to request compensation for revenue losses faced by the states due to the GST rate revision.

AP Hails GST Rejig

However, Andhra Pradesh Finance Minister Payyavula Keshav supported the proposed GST reforms, stating that they would benefit the common people and the economy too.

The Council meeting will continue on Thursday too, to decide on several other slabs and GST rationalization.