GST Council approves 40% slab on luxury goods, simplifies tax to 5% & 18%, cuts rates on essentials from Sept 22

New Delhi (India) September 4: Finance Minister Nirmala Sitharaman presides over the 56th meeting of the GST Council on Wednesday. They have approved the simplification of GST rates and the elimination of the 12% and 28% slabs. The new tax rate structure will come into force on the first day of Navaratri, September 22.

The Council approves a 40% slab for sin and luxury items. They also commence a two-tier tax scheme with rates of 5% and 18%. 

Focus on Relief for Common Man

Nirmala Sitharaman says, "These reforms have been carried out with a focus on the common man. 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," regarding the new rates.

Cigarettes and tobacco products, however, will still be subject to a 28 percent GST rate plus a compensation cess until the loans are paid back.

PM Modi Welcomes Reforms

Prime Minister Narendra Modi praises the action. He cites his promise on Independence Day to implement GST reforms of the future.

Modi says, “The Union Government had prepared a detailed proposal for broad-based GST rate rationalisation and process reforms, aimed at ease of living for the common man and strengthening the economy. Glad to state that the GST Council, comprising the Union and the States, has collectively agreed to the proposals submitted by the Union Government on GST rate cuts and reforms, which 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," in a post on X.

Impact on Daily Use Items 

The restructure will result in lower prices for 175 general mass-consumed commodities, such as bread, milk, paneer, and snacks. Products including hair oil, shampoos, toilet soaps, toothbrushes, cookware, and dinnerware will now be included in the 5% category.

Products like paneer, chenna, UHT milk, and other Indian breads will go from 5% to 0%. There will now be a 5% tax on spectacles.

Shift in Tax Structure for Automobiles

Currently taxed at 28%, nearly 90% of goods will now only be subject to 18%. This includes air conditioners, televisions larger than 32 inches (all TVs are currently under 18%), cement, dishwashing machines, and small motorbikes and cars under 300cc.

Automobiles, including buses, lorries, ambulances, small automobiles up to 350cc, and auto parts, will also be moved to the 18% slab. Bikes and dishwashing machines will continue to be in the 18% category.

Luxury & Sin Goods in 40% Slab

 A new 40% GST rate for sin and ultra luxury products was also authorized by the council. Paan masala, tobacco, cigarettes, bidis, aerated water, carbonated and caffeinated beverages, and luxury goods including yachts, helicopters, and motorcycles larger than 350 cc will also be subject to the higher slab.