The 56th Goods and Services Tax (GST) Council meeting, scheduled for September 3-4 in New Delhi, is set to discuss one of the biggest tax overhauls since the GST regime was rolled out in 2017. An officers’ meeting on September 2 will lay the groundwork for the two-day deliberations.
What is the GST Council?
The GST Council is responsible for making recommendations on tax rates, exemptions, and compliance measures under the GST framework.
Who’s on the GST Council?
The meeting will be chaired by Union Finance Minister Nirmala Sitharaman and attended by finance ministers from all states and Union Territories, as well as senior officials from the Centre.
Decisions need to be taken by consensus or weighted voting (Centre has 33 per cent, states collectively 67 per cent).
Rate rationalisation: Key issues on GST Council agenda
The upcoming meeting is expected to take up rate rationalisation, compliance reforms, and revenue compensation.
Rate rationalisation has proposed a two-rate structure: 5 per cent (lower slab) and 18 per cent (standard slab). This would scrap the 12 per cent and 28 per cent slabs. Other tax changes may include:
- Luxury and sin goods may see a levy of 40 per cent on items like tobacco, pan masala, and high-end automobiles has been proposed.
- High-value cars may see a 40 per cent GST plus cess, but the effective rate may likely remain unchanged at around 50 per cent.
Prime Minister Narendra Modi, in his Independence Day speech, termed this restructuring a “next-generation reform” aimed at simplifying compliance and reducing disputes.
Tax cuts expected on consumer products
Widespread tax cuts are expected on daily essentials like toothpaste, shampoos, and talcum powder to 5 per cent from 18 per cent.
Electronics, including televisions and air conditioners, are likely to witness a reduction to 18 per cent from 28 per cent, a move that could boost festive season sales.
On the automobile front, the council is considering lowering the GST on hybrid cars to 18 per cent from 28 per cent, while two-wheelers with engine capacity below 350cc may also benefit from a cut to 18 per cent.
However, large SUVs and luxury cars could face a higher levy under the new structure.
Insurance and ITC discussion
The Council is also expected to deliberate on input tax credit (ITC) for corporations that provide group health and life insurance for employees. As earlier reported by Business Standard, while individual policies are likely to remain exempt, group policies would continue to attract 18 per cent GST, with ITC relief under consideration.
Tax revenue compensation to states
A key sticking point in the discussions is the potential revenue loss for states. Eight opposition-ruled states, including Karnataka, Kerala, West Bengal, Tamil Nadu and Himachal Pradesh, have warned that rationalisation could result in annual losses of ₹1.5-2 trillion, with states bearing over 70 per cent of the hit.
These states proposed an additional levy above the 40 per cent peak rate on luxury and sin goods, with proceeds fully devolved to states, as well as full revenue protection for at least five years.
The Centre, however, has not released an official estimate of revenue loss, but officials have suggested replacing the expiring compensation cess with a new levy earmarked for states.
Market and consumer impact
The automobile sector has seen consumers delaying purchases in anticipation of price cuts ranging from ₹55,000 to ₹1.15 lakh on popular models. The Federation of Automobile Dealers Associations (Fada) recently informed the Commerce and Industry Minister Piyush Goyal that footfalls and bookings had dropped 25 per cent in the latter half of August.
In the FMCG space, companies such as Hindustan Unilever, Godrej and ITC are expected to benefit from lower GST rates on daily essentials.
Equity markets, meanwhile, are watching the Council meeting closely for cues on a potential consumption boost as well as its fiscal implications.
What’s next?
If consensus is reached by the GST Council, notification on revised rates may come by mid-September.
Changes could take effect by October, ahead of Diwali and the Bihar Assembly elections, slated for November this year.
