GST rate cut on most common man’s items; new rates to be effective from Sept 22

A host of goods and services concerning common man including paneer, bread, hair oil, shampoo and toothpaste will become cheaper effective from September 22 as the GST Council, chaired by Union Finance Minister Nirmala Sitharaman and comprising representation from all states, on Wednesday unanimously decided on rate rationalisation.

The Council decided to abolish 12% and 28% tax slabs and introduce a new GST slab of 40%, which will be applicable on super luxury and sin goods.

Briefing the media after the Council meeting, the Union Finance Minister said the decision on rate rationalisation has been taken with full consensus.  

“Every tax on the common man's daily use items has gone through a rigorous review and in most cases the rates have come down drastically. Labour-intensive industries have been given good support. Farmers and the agriculture sector, as well as the health sector, will benefit. Key drivers of the economy will be given prominence,” Sitharaman said.

GST on daily essentials like hair oil, shampoo, toilet soap, toothbrushes and shaving cream will be cut to 5% from the existing 18%. Butter, ghee, cheese and dairy spreads, which are currently taxed at 12%, will move to 5% tax slab.

There will be no GST on individual health and life insurance premiums. At present, it attracts 18% GST. The GST on thermometer will be cut to 5% from the existing 18%.

The new rates will come into effect from September 22, the first day of Navaratri.

Prime Minister Narendra Modi said the tax cuts and GST reforms will benefit the common man, farmers, MSMEs, middle-class, women and youth.

“The wide ranging reforms will improve the lives of our citizens and ensure ease of doing business for all, especially small traders and businesses,” Modi said in a post on X. The Prime Minister had announced about the next-generation GST reforms and rate cuts in his Independence Day address from the Red Fort.

GST on ultra-high temperature milk, chena and paneer will be cut to zero from 5%. "All the Indian breads will see a nil rate. So roti or paratha or whatever it is, they all come to nil," the Finance Minister said.

The Council also decided to introduce a new tax slab of 40%, which will be levied on super luxury items and sin goods like pan masala, cigarettes and carbonated beverages.

“That special rate of 40% has also been proposed, and it's been cleared and will apply only to paan masala, cigarettes, gutka, and other tobacco products such as chewing tobacco, products like zarda, unmanufactured tobacco, and Bidi," the finance minister said.

“All goods, including aerated waters containing added sugar or other sweetening matter or flavoured, caffeinated beverages, carbonated beverages of fruit drink or carbonated beverages with fruit juice and other non-alcoholic beverages, excluding those specified at lower rates, will all be covered under 40%,” she added.

While all the states agreed on rate rationalisation to give relief to the common man, eight opposition-ruled states including Karnataka, West Bengal, Kerala, Jharkhand, Telangana, Tamil Nadu and Punjab, demanded compensation for losses from the rate cut.

Karnataka Revenue Minister Krishna Byre Gowda pitched for an additional levy mechanism to safeguard state revenues. Gowda urged the GST Council to come out with a transparent mechanism to calculate losses from the proposed rate cuts.

Analysts said the rate cuts would positively impact the economy by boosting consumption.

“By putting more money back into the hands of consumers, this move will provide a much-needed consumption stimulus to reorient India's economic growth toward domestic demand,” said Saurabh Agarwal, Tax Partner, EY India

“This unified decision by the Centre and States demonstrates a strong commitment to economic reform and will help offset external headwinds,” Agarwal added. 

 “By lowering rates on everyday items and critical inputs, the reforms provide immediate relief to families and strengthen the foundation for growth,” said Chandrajit Banerjee, Director General, CII.

These measures will not only boost consumer sentiment but also enhance industry confidence. Taken together, the reforms mark a decisive step towards making GST a true growth engine for the Indian economy, said Mahesh Jaisingh, Partner & Indirect Tax Leader, Deloitte India.