Historic GST Reform Announced
The Goods and Services Tax (GST) Council, chaired by Union finance minister Nirmala Sitharaman, unveiled the most extensive revamp of India's indirect tax system since its 2017 implementation. The reform introduces a simplified two-slab structure of 5% and 18%, alongside a new 40% slab for luxury and sin goods.
The new rates take effect from September 22, coinciding with the first day of Navratri, except for tobacco products where the cess regime continues temporarily.
Automotive Sector Changes
Small car buyers benefit significantly with GST reduced from 29% to 18%. Small cars are defined as petrol, LPG or CNG vehicles with engine capacity up to 1200 cc and length up to 4000 mm. Diesel vehicles with up to 1500 cc engine and similar dimensions also qualify.
Large vehicles exceeding these specifications, along with all utility vehicles (SUVs, MUVs, MPVs) meeting certain criteria, now fall into the new 40% GST bracket, consolidating previous GST and cess into a single rate.
Two-Wheeler Rationalization
Motorcycles up to 350 cc engine capacity now attract 18% GST, down from 28%. Models exceeding 350 cc are placed in the 40% category, aligning with luxury vehicle treatment. This change aims to boost mass-market sales while maintaining higher taxes on premium models.
Electric Vehicles and Insurance
Electric cars maintain their 5% GST rate, unchanged under the new framework. In a major relief for consumers, life and health insurance policies are now exempt from GST, previously taxed at 18%, making coverage more affordable.
Tobacco and Alcohol
Cigarettes, cigars, and tobacco products shift to the 40% slab, though the existing 28% GST plus cess continues until compensation cess loans are repaid. Alcohol remains outside GST, taxed separately through state excise duties.
Precious Metals and Mobile Phones
Gold and silver jewellery taxation remains unchanged at 3% GST plus 5% on making charges. Despite industry requests, mobile phones continue at 18% GST, unchanged from the previous regime, despite arguments that they represent a digital necessity rather than luxury.
The reforms, estimated to have a net fiscal implication of Rs 48,000 crore, are designed to spur consumption and improve compliance while providing relief on common daily-use items.
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