In a landmark move, the 56th GST Council approved sweeping reforms, cutting the four-tier tax structure into two main slabs of 5% and 18%, starting September 22, alongside a special 40% GST for luxury and “sin” goods. Finance Minister Nirmala Sitharaman underscored this as a “structural reform” aimed at simplifying compliance and easing the tax burden on consumers.
Big reductions are coming across essential items. Daily household goods like hair oil, soaps, and toothpaste drop to 5% from 18%, while groceries such as butter, ghee, paneer, and bread become tax-exempt. Healthcare and educational supplies, as well as insurance policies, also see significant relief, with life-saving drugs and life/health insurance becoming GST-free.
For farmers and related industries, machinery such as tractors, farm equipment, and irrigation systems now attract just 5%, down from 12–18%. Similarly, vehicles and construction input costs fall, with small cars, three-wheelers, and cement now at 18%, helping make construction and travel more affordable. TVs, air conditioners, and large appliances also benefit from lower GST.
But not everything gets cheaper. A new 40% GST on soft drinks, energy drinks, high-end cars, luxury bads, and sin goods such as tobacco and pan masala marks a strategic shift, targeting consumption patterns and boosting revenue from discretionary items.
What’s next for states? The reforms may lead to short-term revenue dips. Estimates vary, ranging from ₹48,000 crore to ₹2 lakh crore annually. Opposition-ruled states are calling for a fresh compensation mechanism akin to what existed post-GST rollout.
Despite these concerns, analysts expect the reforms to fuel consumer demand, support growth in sectors like FMCG, autos, and electronics, and eventually help states regain fiscal stability through growth and better compliance. This overhaul aligns with PM Modi’s vision of “Swadeshi,” promoting both affordability and domestic consumption.
