GST reforms kick in today; reduced rates on wide range of goods, services

Prices of kitchen staples to electronics, and from medicines, equipment to automobiles, will get cheaper from Monday (September 22) as reduced GST rates on around 375 items come into effect.

In a bonanza to consumers, the GST Council, comprising the Centre and states, decided to reduce tax rates on goods and services from Monday, which is also the first day of Navaratri.

Double bonanza for people: PM Modi

In his address to the nation on the eve of the rollout of the new reduced tax rates, Prime Minister Narendra Modi said, "GST Bachat Utsav (savings festival)", coupled with the hike in income-tax exemption to Rs 12 lakh given in this year's Budget, will be a "double bonanza" for people.

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"Now, there will be only five per cent and 18 per cent tax slabs in GST. Most everyday items will become cheaper. Food items, medicines, soap, brush, paste, health and life insurance, many such goods and services will either be tax-free or only have five per cent GST," Modi said.

He said the cut in GST rates and the hike in I-T exemption limit will help households save Rs 2.5 lakh crore annually.

"Now, the poor, the neo-middle class, and the middle class are receiving a double bonanza. With the reduction in GST, it will be easier for them to fulfil their dreams," the prime minister added.

What will get cheaper?

From Monday, mass consumption items like ghee, paneer, butter, 'namkeen', ketchup, jam, dry fruits, coffee and ice creams, and aspirational goods such as television sets, air conditioners, and washing machines will become cheaper.

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Various FMCG companies have already announced a reduction in prices in view of GST rationalisation.

With GST on most drugs and formulations, and medical devices like glucometers and diagnostic kits reduced to five per cent, the cost of medicines will come down for the common man. Also, home builders will benefit as GST on cement has been cut to 18 per cent, from 28 per cent.

The government has already directed pharmacies to revise their MRP or sell medicines at a lower rate after taking into account the GST cut benefits.

Big cut in auto sector

The biggest beneficiary of the GST rate cut is buyers of automobiles, wherein tax rates have been slashed to 18 per cent and 28 per cent for small and big cars, respectively.

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Several car companies have already announced a reduction in prices.

With regard to services, GST on beauty and physical well-being services, including services of health clubs, salons, barbers, fitness centres, and yoga, has been slashed from 18 per cent with Input Tax credit (ITC), to five per cent without tax credit.

Tax cuts on daily-use products

Also, daily-use products such as hair oil, toilet soap bars, shampoos, toothbrushes, and toothpastes, too, are likely to get cheaper as tax on them has been cut to five per cent from 12/18 per cent currently.

Other daily use items like talcum powder, face powder, shaving cream, and after-shave lotion, too, could see a reduction in prices as GST has come down to five per cent, from 18 per cent.

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Effective September 22, GST will be a two-tier structure wherein the majority of goods and services will attract tax of five and 18 per cent. A 40 per cent tax will be levied on ultra-luxury items, while tobacco and related products will continue to be in the 28 per cent plus cess category.

Mega reforms

Currently, Goods and Services Tax (GST) is levied in 4 slabs of 5, 12, 18 and 28 per cent. Besides, a compensation cess is levied on luxury items and demerit or sin goods.

Union Finance Minister Nirmala Sitharaman said last week that the GST reforms will infuse Rs 2 lakh crore into the economy, leaving people with more cash in hand that otherwise would have gone as taxes.

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About 99 per cent of goods under the 12 per cent GST slab currently will move to five per cent. The rejig will also result in 90 per cent of items under the 28 per cent tax slab coming down to the 18 per cent bracket.

(With inputs from agencies)