NEW DELHI – In a significant move aimed at simplifying the country’s tax system, the Indian government has implemented major Goods and Services Tax (GST) reforms, which took effect on Monday, September 22. These revisions, dubbed “next-generation GST reforms,” replace the previous four-tiered structure with a new, simplified system comprising two main rates: 5% and 18%.
The government states that the reforms are a “citizen-centric evolution” of the landmark tax framework, designed to enhance the quality of life for all citizens by making essential goods and services more affordable.
Key Changes to GST Rates and Goods
The new tax structure eliminates the 12% and 28% slabs, shifting most goods and services into the 5% and 18% categories. A new, higher 40% “super-slab” has also been introduced for certain luxury and “sin” goods.
- From Four Slabs to Two: The previous four main GST slabs of 5%, 12%, 18%, and 28% have been revised. Now, most goods and services are taxed at either 5% or 18%. Only luxury items and “sin” goods like pan masala, tobacco, aerated drinks, high-end cars, and yachts are now subject to the higher 40% rate.
- Lower Rates for Daily Essentials: Numerous items previously taxed at 12% or 18%—including essential food, dairy products, medicines, and household items—have been moved into the lower 5% bracket or, in some cases, the zero-tax category.
- Zero GST on Key Items: Over 50 items now attract zero GST. This includes crucial daily products like UHT (Ultra-High Temperature) milk, pre-packaged paneer, and all types of Indian breads (chapati, roti, paratha). Additionally, over 33 life-saving drugs and all individual health and life insurance plans are now exempt from GST.
- Consumer Durable Price Cuts: The GST on several popular consumer goods has been reduced from 28% to 18%. This includes air conditioners, televisions (32 inches and above), dishwashers, and motorcycles of 350cc or less.
- Reduced Cost of Services: The reforms also make several services more affordable. GST on hotel accommodation costing up to ₹7,500 per day has been reduced from 12% to 5%. Services like gyms, salons, barbers, and yoga centers have also seen a reduction from 18% to 5%.
While the majority of changes benefit consumers, some items, particularly those in the new 40% slab, will now be more expensive. Overall, the government claims that around 375 items will become cheaper, and the simplified structure will also reduce compliance costs for businesses, especially for MSMEs and startups.