GST 2.0: Council approves two-slab structure, set for implementation by Sept 22

Household items such as hair oil, toilet soap bars, shampoos, toothbrushes, etc. will cost less, while the tax on personal health and life insurance will be brought down to nil with the Goods and Services Tax (GST) Council on Wednesday approving a complete overhaul of the GST regime.

In its 56th meeting, the GST Council, chaired by Finance Minister Nirmala Sitharaman, approved limiting slabs to 5 per cent and 18 per cent, effective from September 22.

The new structure will replace the existing four-tier system. However, there is a special 40 per cent rate on luxury and "sin" goods. This reform, dubbed GST 2.0, is expected to reduce tax burden, boost consumption and enhance the ease of doing business across the country.

The government has estimated a financial implication of around Rs 48,000 crore due to the rate rationalisation.

"Pan masala, gutkha, cigarettes, chewing tobacco products like zarda, unmanufactured tobacco and bidi will continue at the existing rates of GST and compensation cess where applicable, till loan and interest payment obligations under the compensation cess account are completely discharged," Sitharaman said.

The council has slashed the GST rates on a wide range of household items from 18 per cent or 12 per cent to 5 per cent. This includes hair oil, toilet soap bars, shampoos, toothbrushes, toothpaste, bicycles, tableware, kitchenware and more.

Additionally, ultra-high-temperature milk, prepackaged 'chena' or paneer, and all Indian breads like chapati, roti, paratha and parotta will now attract a nil GST, down from 5 per cent.

Food items such as packaged namkeens, bhujia, sauces, pasta, instant noodles, chocolates, coffee, preserved meat, cornflakes, butter and ghee will also see GST reduced from 12 per cent or 18 per cent to 5 per cent, making daily consumption more affordable.

In a significant move for the automotive and electronics sectors, the GST on air-conditioners, TVs, dishwashing machines, small cars, motorcycles (≤350cc), buses, trucks, ambulances and three-wheelers has been lowered from 28 per cent to 18 per cent. All auto parts will now attract a uniform GST rate of 18 per cent.

To support farmers and rural economies, the GST on agricultural goods like tractors, soil preparation or cultivation machinery, harvesting or threshing equipment and composting machines has been reduced from 12 per cent to 5 per cent. Similarly, labour-intensive goods such as handicrafts, marble and travertine and granite blocks and intermediate leather goods will now be taxed at 5 per cent, down from 12 per cent.

The GST on cement, a key construction material, has been cut from 28 per cent to 18 per cent, a move expected to lower housing and infrastructure costs.

In a major push for affordable healthcare, the GST on 33 life-saving drugs and medicines has been reduced from 12 per cent to zero, and three critical drugs for cancer, rare diseases and severe chronic conditions will also be GST-free. All other drugs and medicines will now attract a 5 per cent rate, reduced from 12 per cent. Medical apparatus, devices and supplies and equipment for medical, surgical, dental, or veterinary use will see the rate drop from 18 per cent or 12 per cent to 5 per cent.

The government has corrected the inverted duty structure in the manmade textile sector, reducing the GST on fibre from 18 per cent to 5 per cent and on manmade yarn from 12 per cent to 5 per cent.

In the hospitality sector, hotel accommodation services costing up to Rs 7,500 per unit per day will now be taxed at 5 per cent, down from 12 per cent. Beauty and wellness services, including gyms, salons, barbers and yoga centres, will also see GST reduced from 18 per cent to 5 per cent.

The decision aligns with Prime Minister Narendra Modi’s Independence Day announcement on August 15, where he promised "next-generation GST reforms" as a "Diwali gift" to reduce the tax burden on the common man, farmers, the middle class, and micro, small and medium enterprises.