GST Council Okays Tax Cuts On Tvs, Small Cars, And A Host Of Consumer Goods New Rates From 22 September

(MENAFN- Live Mint) The GST Council on Wednesday unwrapped tax cuts on a wide array of daily use and aspirational goods ranging from packaged foods to consumer electronics, simplifying a multi-tiered structure and stimulating consumption. Over a marathon meeting stretching over 10 hours, the federal indirect taxes body executed the biggest overhaul of India's Goods and Services Tax (GST) regime, offering cheer for millions of consumers ahead of the nation's key festive season.

The new rates will take effect on 22 September, cooling prices of a host of items from toothpaste and shampoo to dishwashers, television sets and small and big cars. However, a major sticking point remains unresolved: several states not ruled by the Bharatiya Janata Party have flagged potential revenue loss and pressed for compensation, a demand that has yet to be addressed by the central government.

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Finance minister Nirmala Sitharaman said this is not just tax rate rationalization, but is also about reforms and improving ease of doing business.“There shall only be two slabs,” the Sitharaman said.

Focus on common man

“The reforms have been carried out with a focus on the common man,” the minister said at a late-night press briefing, adding that every tax levied on items used by the common man have been rigorously reviewed while finalizing the proposals.

As part of the tax rate revamp, GST on products like hair oil, shampoo, tooth paste, tableware and kitchenware will come down from either 12% or 18% to 5%. Similarly, products like paneer and all forms of Indian breads, whether roti or paratha, will come down from 5% to zero.

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Tax rate on products like air-conditioners, TVs, dishwashing machines, small cars and motorcycles of up to 350 cc will come down from 28% to 18%. Biopesticides, natural menthol, handicrafts, marble, granite blocks and intermediate leather goods will come down from 12% to 5%.

GST on hotel rooms with daily tariff below ₹7,500 will come down from 12% to 5%. However, air transport service, other than economy class, will move from 12% to 18% with the abolition of the 12% slab. Also, composite supply of services for offshore exploration will move from 12% to 18%.

Tax burden on high-end automobiles will also come down with the expiry of the compensation cess. As per the Council's decision, cars with engine capacity more than 1200 cc (1500 cc in the case of diesel-powered cars) will move from 28% to 40% without the compensation cess. With the expiry of cess which ranges from 17% to 22% on such cars, these vehicles will actually become cheaper, in spite of moving to a higher GST rate. Small cars will also benefit from tax reduction as they will move from 28% to 18%.

Buses, three-wheelers and ambulances will attract 18% instead of the present 28%. Sitharaman explained that the new 40% special rates will apply only on sin goods like pan masala and cigarettes, and super-luxury goods like sports utility vehicles.

Insurance

All individual life insurance policies and all health insurance policies including family policies will now be exempt from GST. At present, these attract 18%, Sitharaman explained.

Sitharaman said discussions went on for long, but every member endorsed the proposals.“They understood the need of the hour,” Sitharaman said, thanking the Council members.

Pan masala, gutkha, cigarettes, chewing tobacco products, unmanufactured tobacco and bidi will continue at the existing rates of GST and the compensation cess where applicable, till the loan and interest payment obligations under the compensation cess account are completely discharged.

Navratri

All the proposed changes will take effect on 22 September, the first day of Navaratri, except for the transition of tobacco and tobacco products into the new regime, for which the GST Council chairperson will decide a date.

As per the tax restructure, GST will now be levied on the retail price of pan masala, gutka, cigarettes and chewing tobacco instead of the transaction value.

This marks the most ambitious reform of GST, the single national tax that Prime Minister Narendra Modi's government rolled out in his first term, seeking to unify the vast Indian market. Powering up consumption is a priority for Modi, with tariff-related uncertainties clouding several export-focused sectors.

The move comes as the government seeks to counter external pressures, including a new, punitive tariff regime from the Trump administration in the US that threatens Indian exports. A consumption-driven recovery at home could help offset these headwinds.

State concerns

However, states voiced concerns over potential revenue shortfalls, with Punjab finance minister Harpal Singh Cheema calling for an alternative compensation mechanism for the lost tax revenue. Himachal Pradesh's town & country planning minister Rajesh Dharmani noted a projected cumulative revenue loss of $11.1 billion, with only half of that amount expected to be recouped from higher taxes on "sin" and luxury goods. While the Centre is on track to repay prior GST compensation loans to states ahead of schedule, officials from both states stated there was no consensus on new levies to address future revenue losses.

West Bengal finance minister Chandrima Bhattacharya stated that while a 40% GST rate on "sin" goods was approved, no decisions were made on any additional levies to replace the compensation cess. Bhattacharya, who anticipates an annual revenue loss of about ₹47,700 crore for her state, noted that the central government's estimated total revenue loss was likely too low.

Echoing these concerns, Jharkhand finance minister Radha Krishna Kishore projected an annual loss of ₹2,000 crore for his state, mainly from the automobile and cement sectors, and urged the Centre to consider the economic impact on states beyond the current compensation period.

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