In a cheer for the aam aadmi ahead of Navratri and Diwali, the Nirmala Sitharaman-led GST Council overhauled the complicated indirect tax regime, announcing sharp reductions in rates on food and daily essential items as well as consumer durables like TVs and refrigerators.
The GST bonanza will leave more money in the hands of the middle class, which received a substantial tax relief earlier this year after annual income of up to Rs 12 lakh was made tax-free in the Union Budget.
GST RELIEF FOR MIDDLE CLASS
From now on, there will be just two tax slabs – 5% and 18% – from the previous four. The rates will come into effect from September 22. Sin goods and ultra-luxury items will, however, attract a higher tax of 40% from the previous 28%.
The idea is simple: put more money back in the hands of the middle class – the economy’s workhorse who are the biggest spenders – and boost domestic consumption.
It will also encourage bulk buying ahead of the long festive season, when the middle class generally loosens their purse strings, and thereby, to some extent, cushion the economic blow felt by manufacturers due to the hefty 50% US tariff.
While addressing the media, Sitharaman made no bones of the fact that the aam aadmi was the focus behind the most sweeping reset of the GST regime since its introduction eight years ago.
“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,” the Union Finance Minister said.
The middle class also found a mention in the X post of Prime Minister Narendra Modi, who emphasised that the GST rate overhaul was aimed at ease of living for the common man.
“The wide-ranging reforms will benefit… the common man, farmers, MSMEs, middle-class, women and youth,” PM Modi said.
WHAT CHANGES FOR THE AAM AADMI?
But, what changes for the common man? For that, we need to look at a sector-wise breakdown.
The immediate impact will be felt in daily use food items and staples. Ready-made frozen parathas, chapatis, khakhra, pizza bread, and paneer are now fully exempt from GST.
While all diary milk was already GST exempt, the government has now slashed the tax rate to nil for ultra-high-temperature (UHT) milk or milk having a long shelf life. Moreover, the GST rate on both plant-based milk drinks and soya milk drinks has now been reduced to 5%.
Kitchen staples like butter and ghee, jam, fruit jellies, sauces, pre-packed namkeens and bhujia will see GST rates slashed from 12-18% to 5%. Pasta, cornflakes, biscuits, chocolate and cocoa products, dry fruits and nuts, and dates will also attract just 5% tax.
These are unavoidable monthly purchases for the middle class and a reduction in GST will make these products affordable and ease household budgets.
Personal care items, such as hair oil, toothpaste, shampoo, combs will also become cheaper as these will now attract just 5% GST instead of 18%. Tableware, kitchenware, umbrellas, utensils, bicycles, and furniture made of bamboo will also see a rate cut from 12% to just 5%.
TVs, ACs, SMALL CARS TO GET CHEAPER
The festive season is a prime period where the middle class usually splurges on big-ticket consumer durables, especially due to steep discounts. With products like ACs, large-screen TVs, refrigerators and washing machines set to attract 18% GST from the steepest 28%, consumers can expect more savings.
Another cheer for the middle class is that individual health and life insurance premiums, earlier taxed at 18%, will now be GST free. This will not only make health insurance premiums more affordable, but also vastly improve penetration as it will now be enticing for first-time buyers.
“Exemption of GST on all individual life insurance policies, whether term life, ULIP, or endowment policies, and reinsurance thereof, will make insurance affordable for the common man and increase the insurance coverage in the country,” Sitharaman said.
Besides, over 30 specialised drugs, including life-saving cancer treatments and rare disease medications, will now see zero GST.
There is also good news for those looking to buy a small car and bikes (up to 350 cc) as these will become cheaper – courtesy of a reduction in GST from 28% to 18%.
But, what defines a “small car”? As per the government categorisation, “small cars” are those that have petrol engines up to 1200 cc, or diesel engines up to 1500 cc. Their length must not exceed 4 metres.
Thus, cars like Maruti Suzuki Alto, Swift, Fronx, Tata Punch and Hyundai i10 etc will likely get cheaper. However, more luxurious cars with a higher cc will be taxed at a steep 40%.
TAX RELIEF IN BUDGET
The GST reforms, coupled with the significant tax relief for millions of middle class taxpayers announced in the February Budget, will no doubt go a long way in stimulating consumer spending.
Effectively, under the new tax regime, individuals earning up to Rs 12.75 lakh per annum will have no income tax liability.
The middle class forms the backbone of the country’s economy. The BJP knows that very well and had faced middle class anger in the 2024 Lok Sabha polls. With a string of key Assembly elections scheduled in the next few months, the BJP can ill afford to alienate the aam aadmi.
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