The 58th GST Council meeting will be chaired by Union Finance Minister Nirmala Sitharaman, who will steer talks on important changes to the Goods and Services Tax structure.
The agenda focuses on two main areas: reducing GST rates on 175 items and rationalising the current four-tier tax structure into a simpler two-tier system. The GST Council, which includes both the union and state finance ministers, will consider a new two-slab structure. This proposed system would replace the current four slabs of 5pc, 12pc, 18pc, and 28pc with just two main rates: 5pc for essential goods and 18pc for non-essential items.
A special 40pc slab is also being considered for "sin goods," such as tobacco, and luxury items, like cars priced at or above ₹50 lakh. This two-tier structure has reportedly already been approved by a fitment panel.
Potential Rate Cuts for Consumers
According to reports, India is planning to reduce GST by at least 10 percentage points on nearly 175 items, a move that would benefit a wide range of consumers.
- Essential and Food Items: GST on products like toothpaste, shampoo, talcum powder, and soaps is likely to be reduced from 18pc to 5pc. Similarly, rates on butter, cheese, and ready-to-eat foods like pickles and snacks may drop from 12pc and 18pc to 5pc. This would place most food and textile items under the 5pc slab, potentially boosting sales for companies like Hindustan Unilever, Godrej Consumer, and Nestle India.
- Consumer Electronics and White Goods: Consumer electronics like TVs, air conditioners, refrigerators, and washing machines—which are currently taxed at 28 per cent—would now be included in the 18 per cent slab. Additionally, it is anticipated that the cement GST will be lowered from 28 per cent to 18 per cent.
Also Read: GST revenue rises 6.5 pc on higher domestic sales
Impact on the Auto Industry
The proposed GST changes would have a significant impact on the automotive sector:
- Petrol and Hybrid Cars: Small petrol cars with engine sizes up to 1,200 cc are expected to see their GST rate reduced from 28pc to 18pc. This benefit may also be extended to small hybrid cars, which would be a positive development for companies like Maruti Suzuki and Toyota India.
- Electric Vehicles (EVs): The GST Council is considering increasing the tax on electric cars in the ₹20-40 lakh price range from the current 5pc to 18pc. A higher tax is also being proposed for luxury EVs from brands like Tesla and BYD.
- Two-Wheelers: The two-wheeler industry’s long-standing request for a GST rate reduction from 28pc to 18pc is likely to be approved. This would be a significant boost for manufacturers like Hero MotoCorp. However, a new definition for "luxury" two-wheelers may be introduced, with a potential 40pc tax rate on bikes with an engine capacity greater than 350 cc. This has drawn pushback from major players in the middleweight segment, such as Bajaj Auto and Royal Enfield.
Expected Outcomes of GST Rationalisation
- Structural Simplification: The change from a four-slab system to a two-slab system (5pc and 18pc), with an additional 40pc slab for luxury goods, would streamline the tax structure.
- Ease of Doing Business: A simpler structure is expected to reduce litigation, simplify compliance, and improve administrative efficiency.
- Revenue Neutrality: The higher 40pc tax on sin and luxury items is intended to offset the revenue loss from lower taxes on essential goods.
- Compensation and Other Issues: A surplus of ₹40,000-50,000 crore from the compensation cess is being considered to compensate states until its phase-out on October 31. The insurance sector is also advocating for exemptions and rate benefits to be passed on to policyholders. Discussions are also anticipated on resolving the inverted duty structure to ensure consumers benefit from the tax reforms.
Also Read: FM says GST 2.0 will bring economic transparency
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