Centre notifies GST rate cut, to be effective from Sept 22

In a major push to reform the indirect tax system, the Centre on Wednesday notified the new Central Goods and Services Tax (CGST) rates approved by the GST Council on September 3. The state governments are now expected to notify their corresponding State GST (SGST) rates, as GST revenues are shared equally between the Centre and the states. The new rates will take effect on September 22.

The changes will streamline the existing multi-tier structure into two main tax slabs of 5 per cent and 18 per cent, alongside exemptions and a special 40 per cent rate on certain luxury and sin goods. This consolidation is expected to ease the tax burden on essential goods and services, benefiting consumers, farmers, MSMEs and the middle class.

Hailed as “next-gen GST” by Prime Minister Narendra Modi in his Independence Day speech, the reforms aim at improving the ease of doing business, automating refund processes and resolving long-pending issues such as compensation cess liabilities. “These reforms will not only reduce taxes on household essentials but also increase transparency and compliance,” Finance Minister Nirmala Sitharaman said during a press conference.

Under the new system, individual health and life insurance policies, previously taxed at 18 per cent, will now be exempt. Essential and daily-use items that were taxed at 12 per cent or 18 per cent will largely move to the 5 per cent slab. Mid-range products such as electronics, apparel and most processed foods will fall under the 18 per cent rate, down from 28 per cent for many.

High-end goods like luxury cars, tobacco and aerated beverages will attract a 40 per cent tax. However, rate increases on tobacco will be deferred until all compensation cess loans are cleared.

Experts say it is now up to businesses to pass on the benefits of these changes to consumers and update their compliance systems in a timely manner. The Finance Ministry has directed its field officers to compile monthly reports on price changes of common-use items for the next six months.

“Businesses must promptly update their systems, revise pricing and ensure the smooth implementation of new rates across supply chains. The success of this reform depends on how effectively and transparently industry adopts these revised tax rates,” said Rajat Mohan, Senior Partner at AMRG & Associates.