GST bonanza | From Roti to TVs, Cement to Insurance: What gets cheaper in the two-tier tax structure

New Delhi: Common use items from roti/paratha to hair oil, ice creams and TVs will cost less, while tax incidence on personal health and life insurance will be brought down to nil after the all-powerful GST Council on Wednesday approved a complete overhaul of the tangled Goods and Services Tax (GST) regime.

The GST Council approved limiting slabs to 5 per cent and 18 per cent effective from September 22, the first day of Navaratri.

Almost all personal-use items will see rate cuts as the government looks to boost domestic spending and cushion the economic blow of the US tariffs.

Briefing reporters after a marathon day-long GST Council meeting, Union Finance Minister Nirmala Sitharaman said all decisions were taken unanimously, with no disagreement with any state.

The panel approved simplifying the GST from the current four slabs - 5, 12, 18 and 28 per cent, to a two-rate structure - 5 and 18 per cent. A special 40 per cent slab is also proposed for a select few items such as high-end cars, tobacco and cigarettes.

The new rates for all products, except pan masala, gutkha, cigarettes, chewing tobacco products like zarda, unmanufactured tobacco and bidi, will be effective September 22, she said.

While daily use food items will continue to attract nil tax rate, tax rate has been slashed to nil from 5 per cent on ultra-high temperature milk, chena or paneer, pizza bread, khakra, plain chapati or roti.

Nil will also be the tax on paratha (currently charged at 18 per cent). Common use food and beverages ranging from butter and ghee to dry nuts, condensed milk, cheese, figs, dates, avocados, citrus fruits, sausages and meat, sugar boiled confectionery, jam and fruit jellies, tender coconut water, namkeen, drinking water packed in 20-litre bottles, fruit pulp or fruit juice, beverages containing milk, ice cream, pastry and biscuits, corn flakes and cereals, and sugar confectionery are likely to see a cut in tax rate to 5 per cent from current 12 per cent or 18 per cent.

Erasers, maps, pencil sharpeners and exercise books will be charged at nil from 5 per cent.

Consumer goods such as tooth powder, feeding bottles, tableware, kitchenware, umbrellas, utensils, bicycles, bamboo furniture and combs will see rate cut from 12 per cent to 5 per cent. The same on shampoo, talcum powder, toothpaste, toothbrushes, face powder, soap and hair oil has been cut down from 18 per cent to 5 per cent.

She said all individual life and health insurance policies will now attract nil tax in a bid to boost coverage.

Cement will cost less with the tax rate coming down from 28 per cent to 18 per cent. Petrol, LPG and CNG vehicles of less than 1,200 cc and not more than 4,000 mm length and diesel vehicles of up to 1,500 cc and 4,000 mm length would move to 18 per cent rate from the current 28 per cent.

Motorcycles up to 350 cc, consumer electronics like ACs, dishwashers, and TVs too would be taxed at a lower GST of 18 per cent as against 28 per cent currently.

All automobiles above 1,200 cc and longer than 4,000 mm as well as motorcycles above 350 cc, yachts and aircraft for personal use, and racing cars will be charged with a 40 per cent levy. Aerated drinks containing added sugar will be taxed at 40 per cent.

EVs will continue to be charged at 5 per cent.

The financial implication of the rate rationalisation would be Rs 48,000 crore and this would be fiscally sustainable, Revenue Secretary Arvind Shrivastava told reporters here.

The decision by the GST Council would bring down the overall premium as the tax component has significantly come down.

The move to simplify the tax regime - first announced by Prime Minister Narendra Modi in his Independence Day speech - comes as India's exports to the US face a 50 per cent tariff - the highest in the world.

The Indian economy is heavily reliant on consumption with private consumption accounting for 61.4 per cent of the nominal GDP last fiscal.

The GST reforms are likely to boost the economy by up to 0.5 percentage point by the second year of its implementation, effectively neutralising the full impact of the US tariff, economists said.

Tobacco, gutka, tobacco products and cigarettes will continue to be charged at current 28 per cent plus a compensation cess till such time that loans taken to pay states for revenue loss is fully paid back, Sitharaman said.

The 40 per cent tax will also be levied on services by a race club, leasing or rental services, and casinos/gambling/horse racing/lottery/online money gaming.

Supply of service of third-party insurance of goods carriage will now attract 5 per cent with ITC from 12 per cent with ITC.