• The 56th GST Council, chaired by Union Finance Minister Nirmala Sitharaman, approved a two-tier rate structure of 5 and 18 per cent on September 3.

• A special 40 per cent slab is proposed for a select few items, such as high-end cars, tobacco and cigarettes.

• The new tax structure will come into force on September 22.

• Sitharaman said all decisions were taken unanimously, with no disagreement with any state.

• Earlier, there were four slabs of 5 per cent, 12 per cent, 18 per cent and 28 per cent.

• The move to simplify the tax regime — first announced by Prime Minister Narendra Modi in his Independence Day speech — comes as India’s exports to the US face a 50 per cent tariff - the highest in the world.

• The Indian economy is heavily reliant on consumption with private consumption accounting for 61.4 per cent of the nominal GDP last fiscal. 

What is Goods and Services Tax (GST)?

• The introduction of the Goods and Services Tax (GST) regime in the country was a very significant step in the field of indirect tax reforms in India. By amalgamating a large number of central and state taxes into a single tax, the aim was to mitigate cascading or double taxation in a major way and pave the way for a common national market.

• Before implementation of the GST regime in the country, the issue was deliberated in detail by the empowered committee of state finance ministers, select committee of Rajya Sabha and Parliamentary Standing Committee on Finance.

• After detailed and prolonged deliberation, the Constitution (One Hundred and First Amendment) Act, after ratification by 50 per cent of the states, was assented to by the President on September 8, 2016. Thereafter, Central Goods and Services Tax (CGST) Act, Integrated Goods and Services Tax (IGST) Act, Union Territory Goods and Services Tax (UTGST) Act, and Goods and Services Tax (Compensation to States) Act were enacted in order to achieve a successful rollout of the GST regime in the country from July 1, 2017.

• With GST, India took a quantum leap towards the goal of establishing ‘one nation, one market’ by dismantling multiple taxes and unifying them into a single tax.

Some of the key decisions of 56th GST Council:

• Common use items from roti/paratha to hair oil, ice creams and TVs will cost less, while tax incidence on personal health and life insurance will be brought down to nil.

• Almost all personal-use items and aspirational goods like AC, washing machines, will see rate cuts.

• Premium paid for individual life insurance and health insurance (including family floater), policies too have been exempted from GST. Earlier, such policies were subject to 18 per cent GST.

• All drugs/medicines have been prescribed a concessional rate of GST of 5 per cent, except those specified at nil rate.

• The rate of 5 per cent applies on all medical devices, instruments, apparatus used in medical, surgical, dental and veterinary uses other than that are exempted specifically.

• Common use food and beverages ranging from butter and ghee to dry nuts, condensed milk, cheese, figs, dates, avocados, citrus fruits, sausages and meat, sugar boiled confectionery, jam and fruit jellies, tender coconut water, drinking water packed in 20-litre bottles, fruit pulp or fruit juice, beverages containing milk, ice cream, pastry and biscuits, corn flakes and cereals, and sugar confectionery saw a cut in tax rate to 5 per cent from current 12 per cent or 18 per cent.

• Erasers, maps, pencil sharpeners and exercise books will be charged at nil from 5 per cent.

• Consumer goods such as tooth powder, feeding bottles, tableware, kitchenware, umbrellas, utensils, bicycles, bamboo furniture and combs will see a rate cut from 12 per cent to 5 per cent. The same on shampoo, talcum powder, toothpaste, toothbrushes, face powder, soap and hair oil has been cut down from 18 per cent to 5 per cent.

• Cement will cost less with the tax rate coming down from 28 per cent to 18 per cent.

Auto sector

• The GST rate on all small cars has been reduced from 28 per cent to 18 per cent. For the purposes of GST, small cars means petrol, LPG, or CNG cars with engine capacity up to 1,200 cc and length up to 4,000 mm and Diesel cars with engine capacity up to 1,500 cc and length up to 4,000 mm.

• The GST rate on all mid-size and large cars — vehicles exceeding 1,500 cc or length exceeding 4,000mm — is 40%. Further, motor vehicles in the category of Utility Vehicles, by whatever name called including Sports Utility Vehicles (SUV), Multi Utility Vehicles (MUV), Multi-purpose Vehicles (MPV) or Cross-Over Utility Vehicles (XUV), with an engine capacity exceeding 1,500 cc, length exceeding 4,000 mm, and ground clearance of 170 mm and above, will also attract a GST rate of 40 per cent without any cess.

• Motor vehicles designed for the transport of goods, such as lorries and trucks, will attract a GST rate of 18 per cent. It has been reduced from 28 per cent.

• The GST rate on three-wheelers is 18 per cent. It has been reduced from 28 per cent.

• Motorcycles of engine capacity up to 350 cc attract a GST rate of 18 per cent. Motorcycles of engine capacity exceeding 350 cc attract a GST rate of 40 per cent.

• Electric vehicles will continue to be charged at 5 per cent.