In a landmark move, the Goods and Services Tax (GST) Council, during its 56th meeting that stretched over 10 hours, approved sweeping reforms to India’s indirect tax system. The Council endorsed a simplified two-rate structure of 5% and 18%, while reserving a 40% levy solely for luxury, sin, and demerit goods such as cigarettes and pan masala.
Union Finance Minister Nirmala Sitharaman, who chaired the meeting with ministers from 31 states and Union Territories, announced that most changes will be effective from September 22, coinciding with the start of Navratri. The reforms aim to reduce the tax burden on households, resolve disputes over classification, improve working capital for businesses, and speed up refunds through automation.
The changes bring immediate relief on a wide range of essentials. Packaged foods like juices, butter, cheese, pasta, and sausages now carry lower rates, while ultra-high temperature milk, roti, paneer, and pizza bread fall under a zero-tax category. Personal care items such as soaps, shampoos, and toothpaste drop to 5%, and household goods like bicycles and kitchenware also get cheaper. White goods including air conditioners, washing machines, and televisions move down to the 18% slab from 28%. Small cars and motorcycles under specific engine capacities are also taxed at 18%, while bigger cars face the 40% rate.
A major relief comes in the insurance sector, as all life and health insurance products—including family floater plans and senior citizen policies—are exempt from GST. Services such as gyms, salons, and yoga centers will now be taxed at 5% instead of 18%. Importantly, electric vehicles retain their concessional 5% rate.
The reforms also tackle long-standing issues like inverted duty structures in the textile and fertilizer industries. Taxes on manmade fiber and yarn were cut sharply, as were levies on key fertilizer inputs. According to Revenue Secretary Arvind Shrivastava, the net revenue impact is projected at around $5.7 billion, based on the 2023–24 consumption base, though he stressed this should not be seen purely as a loss but as a growth-oriented measure.
Prime Minister Narendra Modi hailed the reforms as a step toward supporting farmers, small traders, MSMEs, women, and youth, while industry leaders pledged to pass benefits to consumers. The Confederation of Indian Industry praised the clarity and predictability these changes bring, noting that they will reduce compliance burdens, support jobs, and stimulate demand.
