GST reforms: Rate cuts introduction from today

From the first day of Navratri festival, the GST moves to a two-tier structure, where the majority of goods and services will fall either under 5% or 18% tax slabs or attract no tax.

New Delhi: The country's indirect tax structure will undergo a significant revamp from Monday with introduction of the second generation of the goods and services tax (GST 2.0) system, making essential and mass-market products cheaper while pushing up the prices of ultra-luxury and sin goods.

From the first day of Navratri festival, the GST moves to a two-tier structure, where the majority of goods and services will fall either under 5 per cent or 18 per cent tax slabs or attract no tax. The 12 per cent and 28 per cent GST tax slabs have been scrapped. However, a special 40 per cent GST rate also kicks in. It will apply ultra luxury products and sin goods like pan masala, cigarettes, aerated water with added sugar and carbonated beverages.

Auto sector is among the biggest beneficiaries. Duties on small cars have been cut to 18 per cent from earlier 28 per cent plus surcharge. Even the luxury cars that are to be taxed at 40 per cent have witnessed price reduction due to the scrapping of cess. Most automakers including Maruti Suzuki, Tata Motors, Mahindra and Hyundai have announced significant reduction in vehicle price.

Leading FMCG firms like Hindustan Unilever, Procter & Gamble and Emami have also announced significant cut in prices of daily-use items like toilet soaps, hair oil, shampoo, toothpaste, toothbrush, razors, after-shave lotions and baby diapers. The GST on these items has been cut to 5 per cent from earlier 12/18 per cent.  

The mass consumption items like ghee, paneer, butter, 'namkeen', ketchup, jam, dry fruits, coffee and ice creams will also witness significant drop in prices.

While the companies have announced reduction in prices with effect from September 22, it may take months to be reflected in the price tags of the items. The old maximum retail price (MRP) tag can continue to be used until March 31, 2026, or until existing stock is exhausted.

However, the Department of Consumer Affairs has directed companies and retailers to ensure that the correct revised MRP is communicated and displayed through stickers, stamping, or online printing at any place on the package.

The Department of Consumer Affairs has introduced a new GST grievance redressal facility on the National Consumer Helpline (NCH), giving consumers a direct channel to report issues related to revised GST rates, billing, and exemptions.

According to an analysis conducted jointly by the Federation of Indian Chambers of Commerce and Industry (FICCI) and the Thought Arbitrage Research Institute (TARI), there will be either nil or 5 per cent GST on more than 75 per cent of the items rural Indians spend money on, while for urban Indians this proportion will be 66 per cent.

This move is expected to significantly boost consumption especially during the festive seasons of Navratri and Diwali.

Union Finance Minister Nirmala Sitharaman said the GST rate cut would put around Rs 2 lakh crore in the hands of the people, which will help boost consumption and accelerate economic growth.

The decisions regarding GST reforms and rate cut were taken by the GST Council at its meeting held on September 3. Apart from the rate cuts the Council has also approved structural reforms in the system to make doing business easier.

For businesses, especially MSMEs, GST 2.0 introduces rationalised rates that address distortions caused by the inverted duty structure.

Sectors critical for rural employment and manufacturing—such as tractors, farm machinery, fertilizers, textiles, handicrafts, auto components, and construction inputs—are now subject to lower, more rational rates, FICCI-TARI report said.

“These reforms are among the most revolutionary tax transformations in independent India, aimed at empowering small traders, enhancing consumer confidence, and advancing the nation’s economy towards the $10 trillion mark,” said Praveen Khandelwal, National Secretary General, Confederation of All India Traders (CAIT).

Khandelwal said the CAIT has advised all trade associations across the country to ensure that the benefit of the GST rate cut is passed on to consumers both in letter and in spirit.