Prime Minister Narendra Modi on Friday announced that citizens will receive a Diwali gift in the form of major changes to the Goods and Services Tax (GST). Speaking from the Red Fort during his Independence Day address, Modi said the reforms would make India’s tax system simpler and lighter for everyone.
What will change in GST?
The Centre has proposed a two-rate GST system of 5 per cent and 18 per cent, removing the current 12 per cent and 28 per cent slabs, news agency PTI reported. The plan has already been sent to the group of state finance ministers, who will study it and then present it before the GST Council. The council is expected to meet next month.
Currently, GST is structured in four major slabs:
- Nil/0 per cent – for essential food items
- 5 per cent – for everyday goods
- 12 per cent – for standard goods
- 18 per cent – for electronics and services
- 28 per cent – for luxury and sin goods
Under the proposed changes, most goods from the 12 per cent slab will move to 5 per cent, while about 90 per cent of items under the 28 per cent slab will shift to 18 per cent. Luxury and sin goods will face a special rate of 40 per cent, covering only a handful of products like tobacco. Online gaming is also expected to be treated as a demerit category and taxed at the highest rate, PTI reported.
What did PM Modi say?
PM Modi called the reforms a festive gift. “This Diwali, I am going to make it a double Diwali for you. The citizens will receive a big gift… We are bringing next-generation GST reforms. This will reduce the tax burden across the country. This will be a gift ahead of Diwali.,” he said.
Earlier in his speech, Modi called Independence Day “a festival of 1.4 billion resolutions” and said the Constitution had been guiding India “like a lighthouse” for 75 years. He also stressed on Atmanirbharta (self-reliance), saying, “Atmanirbharta is not restricted solely to the rupee, pound, or dollar. It is related to our capabilities. Made-in-India worked so well that the enemy did not even realise what was destroying them. Imagine, had we not been Atmanirbhar, could we have executed Operation Sindoor as smoothly?”
Why the government wants reforms
The Centre currently earns most of its GST revenue from the 18 per cent slab, which contributes 65 per cent of collections. The 28 per cent slab brings in 11 per cent, the 12 per cent slab gives 5 per cent, and the 5 per cent slab provides 7 per cent. By merging slabs, the government hopes to simplify taxation and reduce compliance issues.
What will become cheaper?
Many everyday goods and services are likely to become cheaper once the new GST rates take effect by Diwali. According to a report by Financial Express, products that are expected to shift to the 5 per cent bracket include:
- Tooth powder, toothpaste, soaps, hair oil
- Processed foods, snacks, frozen vegetables, condensed milk
- Mobiles, computers, sewing machines, pressure cookers, geysers
- Water filters (non-electric), irons, vacuum cleaners
- Ready-made garments above ₹1,000, footwear in ₹500–₹1,000 range
- Most vaccines, HIV/TB diagnostic kits, Ayurvedic medicines
- Bicycles, non-kerosene stoves, barbecues, cookware, utensils
- Exercise books, geometry boxes, maps, globes
- Glazed tiles, pre-fabricated buildings, vending machines
- Public transport vehicles (sold, not fares), agricultural machinery
- Solar water heaters
Items to get cheaper in 18 per cent slab
Items now taxed at 28 per cent that will move to 18 per cent include:
- Insurance (in some cases may drop to 0 per cent)
- Cement, ready-mix concrete
- TVs, refrigerators, washing machines, ACs
- Car and motorcycle seats, railway AC units
- Aerated water, dishwashers, aircraft for personal use
- Protein concentrates, sugar syrups, coffee concentrates
- Plastic products, rubber tyres, aluminium foil, tempered glass
- Printers, razors, manicure kits, dental floss
