New lower GST (goods and services tax) rates are now in effect, resulting in a significant reduction in the prices of as many as 375 items, ranging from toothpaste and shampoo to cars and television sets. This move is seen as an attempt to boost consumption and cushion the economy from the effects of tariff headwinds.
The previous tax slabs of 5%, 12%, 18%, and 28% have now been streamlined into two main rates: 5% and 18%. As a result, the prices of 99% of daily-use items have been reduced.
GST on leather, footwear, textiles, handicrafts, and toys has been reduced to 5%, while pencils, erasers, and exercise books have been made GST-free. The GST on gyms and fitness centres has been slashed from 18% to 5%. Similarly, tax on two-wheelers and small cars has been cut from 28% to 18%, and cement has also seen a reduction from 28% to 18%.
Healthcare has become more affordable, with GST on medicines reduced to 5% or nil, and health insurance made exempt from GST. Daily food items and packaged snacks have been brought under the 5% or nil GST bracket.
This move marks the transition to a two-tier GST system, consolidating the earlier four slabs (5%, 12%, 18%, and 28%) into primarily two – 5% and 18%. However, a special GST rate of 40% will now be applied to a select list of items, including pan masala, tobacco products, cigarettes, aerated drinks with added sugar, caffeinated and non-alcoholic beverages, and other luxury goods. The GST on these items has been increased from 28% to 40%.
These new tax rates are expected to ease the burden not only on businesses but also on consumers, many of whom have been struggling with rising prices of essential goods. However, this should not be misconstrued as a cause for increasing the prices of essential items, as has been alleged by the Congress. The party has alleged that although the Centre reduced the GST rate on food items, major companies increased prices by 10 percent, bringing little relief to consumers.
Most Indians find it difficult to make ends meet and can barely afford basic necessities. The reduction in GST is expected to boost demand and encourage new business opportunities.