The Hindu: Published on 04 September 2025.
Why in News?
The GST Council (56th meeting) has approved a major revamp of GST structure.
A new two-rate system (5% and 18%) will be implemented from September 22, 2025.
A special 40% rate has been created for sin goods (tobacco, pan masala, gutka) and super-luxury items (helicopters, yachts, luxury cars).
The reform aims at rate simplification, reduction in tax burden on common-use goods, and correction of inverted duty structures.
Background:
Since GST’s rollout in 2017, multiple tax slabs (0%, 5%, 12%, 18%, 28% + cess) existed.
This created complexity for industries and compliance burdens.
Frequent criticism from businesses, economists, and states pushed for a simpler structure.
The Centre had promised rate rationalisation, and this move is part of long-term reforms.
Key Decisions Taken:
Main GST slabs:
- 5% (essential/common-use goods & services)
- 18% (standard rate for most goods/services)
- 40% (special slab for sin and luxury items)
Goods made cheaper (moved down to 5%):
Daily-use goods: hair oil, soaps, shampoos, toothpaste, toothbrush, kitchenware, bicycles.
Food items: namkeens, sauces, pasta, instant noodles, chocolates, butter, coffee.
Commodities: cement (from 28% → 18%), bio-pesticides, handicrafts, leather goods.
Zero-rated (0%) items:
- Indian breads (roti, chapati, paratha), paneer, UHT milk.
- Individual life & health insurance policies (earlier 18%).
- 33 life-saving drugs and spectacles.
Inverted duty corrections:
- Manmade fibre & yarn reduced to 5%.
- Fertilizer inputs like sulphuric acid, nitric acid, ammonia reduced to 5%.
Special 40% slab:
- Sin goods (tobacco, pan masala, gutka, bidi).
- Luxury items (aerated drinks, high-end cars, yachts, helicopters, private aircrafts).
Fiscal Implications:
- Estimated revenue impact: ₹48,000 crore annually (based on past consumption).
- Govt. expects buoyancy effect: better compliance and higher demand due to lower prices.
- Tobacco products will stay under current 28% + cess until state compensation loans are repaid (likely by end of this year).
Impact Analysis:
On Common Man:
- Cheaper household goods (soap, shampoo, toothpaste, kitchenware, bicycles).
- Reduced costs for healthcare (0% GST on insurance, life-saving medicines, spectacles).
- Food items like butter, paneer, breads → affordable.
- Cement price cut may lower construction and housing costs.
On Industries:
- Labour-intensive sectors (textiles, handicrafts, leather goods) get relief.
- Manmade textile industry gains from correction of inverted duty.
- Fertilizer sector benefits from cheaper inputs.
On Government & Economy:
- Simplified tax structure → easier compliance.
- May widen tax base and reduce evasion.
- Revenue loss initially, but expected recovery through higher consumption.
On States:
- States had earlier expressed concerns on loss of revenue.
- Centre expects buoyancy effect will balance revenue sharing.
Key Issues / Challenges:
Will the two-slab system sustain government revenues long term?
Transition challenges for businesses (system/software updates, invoicing).
Impact on state finances if buoyancy effect takes time.
Monitoring misuse/underreporting in tobacco & luxury goods segment.
Conclusion:
The two-rate GST reform marks a historic simplification of India’s indirect tax system, reducing burden on the common man, supporting industries, and addressing long-pending issues like inverted duty structures. However, its true fiscal impact will depend on consumption trends, compliance improvements, and revenue buoyancy in the coming years.
