New Delhi: The GST Council on Wednesday approved a two-tier tax structure of 5 per cent and 18 per cent, which will be implemented from September 22, 2025,
announced Finance Minister Nirmala Sitharaman. Addressing a presser on the next generation GST reforms, Sitharaman said, "We've reduced the slabs. There shall be only two slabs, and we are also addressing the issues of compensation cess." "These reforms have been carried out with a focus on the common man. Every tax on the common man's daily use items has gone through a rigorous review and in most cases the rates have come down drastically... Labour intensive industries have been given a good support. Farmers and the agriculture sector, as well as the health sector, will benefit. Key drivers of the economy will be given prominence," Sitharaman said. Speaking further, the Finance Minister said that the GST reduced from 28% to 18% on small cars and motorcycles which are equal to or below 350 cc. She also announced reduction of GST from 28 to 18% on buses, trucks, and ambulances. A uniform rate of 18% on all auto parts will be levied while three wheelers will attract 12% GST instead of 18%.
"The long-pending inverted duty structure problem is getting corrected for the man-made textile sector by reducing the GST rate on man-made fibre from 18% to 5% and man-made yarn from 12 to 5%," Finance Minister informed.
"We are also correcting the inverted duty structure problem in the fertiliser sector by reducing GST from 18% to 5% on sulfuric acid, nitric acid and ammonia," the Union Minister further added.
Sitharaman also announced the "reduction of GST from 12% to 5% on renewable energy devices and parts for their manufacture such as biogas plants, windmills, wind-operated electricity generators, waste to energy plants, devices, PV cells, whether or not assembled in modules or made up in panel, solar cookers, solar water heaters and systems and so on.
Items like tobacco, gutka, tobacco products and cigarettes will continue to be charged at current 28 per cent plus a compensation cess till such time that loans taken to pay states for revenue loss is fully paid back, Sitharaman said.
The 40 per cent tax will also be levied on services by a race club, leasing or rental services, and casinos/gambling/horse racing/lottery/online money gaming.
Supply of service of third-party insurance of goods carriage will now attract 5 per cent with ITC from 12 per cent with ITC.
Next-Generation GST Reforms First Announced by PM Modi On Independence Day
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.
The GST reforms are likely to boost the economy by up to 0.5 percentage point by the second year of its implementation, effectively neutralising the full impact of the US tariff, economists said.
A while ago, Bihar Deputy Chief Minister Samrat Choudhary said that all states were on board for the rate rationalisation, and it was a consensus-based decision.
West Bengal Finance Minister Chandrima Bhattacharya said the total loss due to GST rate rationalisation would be Rs 47,700 crore.
Uttar Pradesh Finance Minister Suresh Khanna said no decision has been taken on the tax incidence on demerit goods, and imposing a levy over and above the 40 per cent would be decided later.
The marathon 56th meeting of the GST Council lasted for 10.5 hours, in which the Centre and states thrashed out key tax proposals.
