GST 2.0 unveiled: Two-slab structure cleared new rates will come into effect September 22

The Goods and Services Tax (GST) Council, in its 56th meeting, approved a historic reform that streamlines the eight-year-old indirect tax regime. After a marathon 10-hour discussion, the Council agreed to reduce the multiplicity of GST tax slabs and move towards a simplified structure.

Union Finance Minister Nirmala Sitharaman announced that a broad two-slab system of 5 % and 18% will now govern most items, while a special demerit rate of 40% will apply only to super luxury, sin, and demerit goods. These changes will take effect from September 22, the first day of Navratri.

Prime Minister Narendra Modi welcomed the consensus, highlighting that the decision will reduce the burden on common citizens, support MSMEs, and promote ease of doing business.

Streamlined GST Tax Slabs for Simplicity

Under the new structure, the previous four-tier system of 5 %, 12 %, 18 %, and 28 % has been rationalized. Now, there will only be two primary GST tax slabs – 5 % and 18 % – along with a 40 % demerit rate.

This major reform aims to eliminate confusion, reduce litigation, and provide clarity to businesses and consumers. By cutting rates on essential goods and services, the government seeks to ease the cost of living while ensuring that industries remain competitive.

GST Slab Rates Reduced for Everyday Essentials

The Council announced sweeping cuts in GST slab rates on several common-use items. Packaged and branded food items such as fruit juices, butter, cheese, condensed milk, pasta, coconut water, soya milk drinks, nuts, dates, and sausages will now be taxed at 5 % instead of 12 %. Medical supplies, including medical-grade oxygen, gauze, bandages, and diagnostic kits, will also see their rates slashed to 5 %.

Ultra-high temperature milk, paneer, pizza bread, khakra, plain chapati or roti, and educational items like erasers have been fully exempted from GST. This move directly benefits households and students by lowering daily expenses.

Household Goods and White Goods See Relief in GST Tax Slabs

Daily-use household items such as hair oil, soap bars, shampoos, toothbrushes, toothpaste, bicycles, and kitchenware have also been moved into the lower 5 % slab. This change ensures that essential goods are affordable for every household.

At the same time, consumer durables such as air conditioners, televisions, and dishwashing machines will now attract 18 % instead of 28 %. Similarly, small cars with engine capacity up to 1200 cc (petrol) or 1500 cc (diesel) and motorcycles under 350 cc will fall under the 18 % category. Larger cars, however, will face a 40 % tax rate.

The GST on electric vehicles remains at 5 %, reaffirming the government’s commitment to green mobility. These revised GST slab rates are expected to boost demand in the automotive and electronics markets.

Insurance and Services Brought Under Lower GST Slab Rates

A key decision by the Council was the exemption of life insurance and health insurance from GST. This includes term insurance, ULIPs, endowment policies, family floaters, and senior citizen health plans.

Additionally, beauty and wellness services like gyms, salons, barbers, and yoga centers will now attract only 5 % GST instead of 18 %. This marks a major relief for middle-class families and service providers. The decision reflects the Council’s intention to balance GST tax slabs across sectors while keeping affordability in mind.

Addressing Inverted Duty Structure with GST Slab Rates

The rationalization of GST slab rates also corrects the long-pending issue of inverted duty structure, where tax on inputs was higher than tax on output. This problem had blocked working capital and increased compliance disputes for businesses.

With the two-slab system, industries such as textiles and fertilizers will see smoother cash flows. For instance, GST on manmade fibers has been reduced to 5 % from 18 %, and manmade yarn to 5 % from 12 %. Similarly, inputs like sulphuric acid, nitric acid, and ammonia for fertilizers have moved to 5 % from 18 %.

Fiscal Impact of GST Slab Reforms

Revenue Secretary Arvind Shrivastava clarified that the changes are fiscally sustainable. The estimated net revenue implication is about Rs- 48,000 crore, based on consumption data from 2023–24. He stressed that this is not a revenue loss but a net fiscal adjustment.

Some states expressed concerns about potential revenue shortfalls, pegging it between Rs- 80,000 crore to Rs- 1.5 lakh crore. However, consensus prevailed, and no voting was required in the meeting. The Council decided in the spirit of cooperative federalism that reforms in GST tax slabs would ultimately benefit both states and citizens.

Industry and Business Welcome Rationalised GST Slab Rates

The Confederation of Indian Industry (CII) hailed the reforms as forward-looking. Director General Chandrajit Banerjee said the simplification of GST slab rates to 5 % and 18 %, along with exemptions for insurance and reduced rates for everyday goods, would ease compliance and reduce disputes.

He assured that industries will pass on the benefits of these rate cuts to consumers, boosting demand and supporting job growth. The reforms, he added, will strengthen predictability and stability in the tax system, which are crucial for businesses.

Focus on Common Man and Economic Growth

Finance Minister Sitharaman emphasized that the reforms focus on the common man, reducing taxes on essential items, and supporting labor-intensive industries like textiles and agriculture. By aligning GST tax slabs, the government has ensured that both rural and urban households will benefit.

She also underlined that the reforms were not influenced by global trade pressures, such as US tariffs, but were the outcome of long-term deliberations by various groups of ministers.

GST 2.0, slabs in India marks a huge turning point

The 56th GST Council meeting marks a watershed moment in India’s tax reforms. By streamlining GST tax slabs into a simple two-rate structure and addressing key issues like inverted duty, classification disputes, and affordability of essentials, the government has taken a major step toward improving ease of living and doing business.

With reduced GST slab rates on essentials, exemptions for insurance, and relief for industries, the reforms strike a balance between fiscal responsibility and public welfare. As the changes roll out from September 22, households, farmers, MSMEs, and businesses are expected to see tangible benefits, making GST a truly people-centric tax system.