Upcoming GST Reforms to Be Implemented from September 22

The GST Council has streamlined the current four-tier system (5%, 12%, 18%, and 28%) into a two-slab framework:

5% – for vital products

18% – applicable to the majority of standard products and services

Moreover, a new 40% tax rate is implemented on luxury and sin products.

Additional Information on the News

0% GST on essential goods/services: Fundamental food products, health and life coverage, learning materials, certain medical equipment.

33 essential medicines + 3 important cancer treatments are exempt from GST.

Advantages of Essential Modifications

For Consumers: Decreased living expenses and better access to healthcare and education from lowered or eliminated GST.

For Companies: Fewer categories lead to reduced misunderstandings and classification disagreements, facilitating smoother adherence.

Reduced GST rates for vehicles, consumer goods, and fast-moving consumer items boost demand and promote the formalization of smaller businesses.

For Economy & Government: Experts forecast a decrease of about 1.1 percentage points in CPI inflation, benefiting household finances.

Demand boost aligns with the holiday season to invigorate spending.

A consistent system enhances the investment environment.

Main Obstacles

Government Revenue: ₹48,000 crore ($5.5 billion) anticipated short-term fiscal deficit that could pressure fiscal consolidation targets.

Tensions between Centre and State: Concerns over compensation and disagreements regarding revenue distribution may emerge.

Elimination of Input Tax Credit (ITC): Specific industries such as healthcare items and insurance are not subject to GST. Exemption implies that businesses are unable to claim ITC, resulting in cascading taxes (tax on tax) and increased hidden costs within the supply chain.

Doubt regarding the National Anti-Profiteering Authority (NAA): The NAA was established to confirm that companies relayed GST reductions to consumers.

Originally intended for 2 years (extendable by the GST Council), but ambiguity regarding revival or replacement leads to lapses in monitoring profiteering.

Sectoral Disparity: A 40% luxury tax might ignite black markets; mid-level sectors (textiles, construction) worry about an 18% rate.

Transitional Problems: Renaming MRPs on outdated inventory risks wasting packaging materials.