New GST rates take effect from September 22

• The new GST rates came into effect from September 22, as recommended by the GST Council.

• The changes aim to simplify rates, remove anomalies, and make the system easier for both businesses and consumers.

• In his address to the nation on the eve of 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 the Budget, will be a double bonanza for people.

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

• Sitharaman said 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.

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.

• When it was launched, there were four GST slabs of 5 per cent, 12 per cent, 18 per cent and 28 per cent.

• With newly introduced reforms, the GST now has a two-tier structure, wherein the majority of goods and services will attract tax of 5 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.

GST reforms

• About 99 per cent of goods under the 12 per cent GST slab currently will move to 5 per cent. 

• The rejig will also result in 90 per cent items under 28 per cent tax slab coming down to 18 per cent bracket.

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

• Mass consumption items like ghee, paneer, butter, ‘namkeen’, ketchup, jam, dry fruits, coffee and ice creams, and aspirational goods like TV, AC, washing machines will become cheaper.

• With GST on most drugs and formulations, and medical devices like glucometers and diagnostic kits reduced to 5 per cent, the cost of medicines will come down for the common man. 

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

• The biggest beneficiary of 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.

• Several car companies have already announced reduction in prices.

• Home builders will benefit as GST on cement has been cut to 18 per cent, from 28 per cent.

(The author is a trainer for Civil Services aspirants.)