Finance Minister Nirmala Sitharaman on Wednesday announced the biggest rate overhaul since the introduction of the Goods and Services Tax (GST) in 2017, unveiling a simplified two-slab structure under what is being called “GST 2.0”.

The 56th meeting of the GST Council approved the abolition of the 12% and 28% slabs, streamlining the regime into just two standard rates – 5% and 18%. A new 40% slab has also been introduced for sin and luxury goods. The reforms will take effect from September 22, the first day of Navratri.

“These reforms have been carried out in a spirit of consensus. There shall be two slabs and we are addressing the issue of compensation cess. Rate rationalisation was a unanimous agenda,” Sitharaman said after the meeting.

The sweeping changes cut taxes on a wide range of consumer essentials, medicines, automobiles and housing inputs, while shifting high-end products and sin goods into the new 40% bracket.

WHAT GETS CHEAPER

• Daily essentials: Hair oil, toilet soaps, shampoos, toothbrushes, tableware and kitchenware will now attract just 5% GST, down from 18%.
• Food products: UHT milk, paneer and all types of Indian breads, including parathas, are now exempt from GST, falling from 5% to zero. Packaged food items such as namkeen, bhujiya, sauces, pasta, cornflakes, butter and ghee will now attract only 5%.
• Healthcare: Thirty-three life-saving drugs and medicines, earlier taxed at 12%, will now be exempt. Spectacles and goggles for vision correction have been slashed from 28% to just 5%.
• Housing: Cement, a key construction input, has been brought down from 28% to 18%, significantly reducing building costs.
• Automobiles & durables: Air conditioners, dishwashing machines and TVs above 32 inches drop from 28% to 18%. All TVs, regardless of size, now attract 18%. Small cars and motorcycles below 350cc, along with three-wheelers, move from 28% to 18%. Petrol cars under 1200cc and diesel cars under 1500cc are down to 18%. Larger passenger vehicles such as buses, trucks and ambulances also move to 18%. Auto parts have been unified at the 18% slab.
• Labour-intensive sectors: Handicrafts, marble and granite blocks, as well as intermediate leather goods, will now attract 5% GST instead of 12%. Natural menthol cut to 5% from 12%; man-made fibre reduced from 18% to 5%, and man-made yarn from 12% to 5%.

WHAT GETS COSTLIER

• Luxury and sin goods: A new 40% slab will apply to paan masala, cigarettes, gutkha, bidis, aerated drinks with added sugar, carbonated and caffeinated beverages, and fruit-based non-alcoholic drinks.
• High-end vehicles and leisure products: Motorcycles above 350cc, mid-size and large cars, yachts, and personal aircraft will now face 40% GST.
• Tobacco products: Importantly, GST will now be levied on the retail sale price (RSP) of paan masala and tobacco, instead of wholesale value-pushing up final prices.

– Ends