GST Council Approves Two-Rate Tax Slab - Chinmaya IAS Academy

GS 3- ECONOMY

The 56th GST Council meeting decided to revamp the GST structure into a simplified two-rate system (Effective September 22, 2025).
Union Finance Minister Nirmala Sitharaman announced the move, aiming to reduce the burden on consumers and support key sectors.

New Tax Structure
- Two primary slabs: 5% and 18%.
- Introduction of a special 40% sin tax on tobacco and luxury items (e.g., yachts, large cars, helicopters).
Effective Date
- Most changes will apply from September 22, 2025.
- Tobacco and tobacco-related products will shift to the new structure later, on a date to be notified.
Fiscal Impact
- Estimated revenue impact: ₹48,000 crore in FY 2023–24 (based on consumption patterns).
- Actual fiscal effect will depend on current consumption trends.

Common & Middle-Class Consumers
- Daily-use items like hair oil, soap, shampoo, toothbrush, toothpaste, cycles, kitchenware → moved to 5% slab (earlier 12–18%).
- Processed food items such as namkeens, sauces, chocolates, noodles, coffee, butter → now at 5%.
Agriculture & Labour-Intensive Industries
- Bio-pesticides, handicrafts, marble, travertine blocks, granite blocks → rates reduced.
- Relief for farmers and labour-intensive industries.
Health & Insurance
- Individual life and health insurance policies → tax cut from 18% to 0%.
- 33 life-saving medicines → tax removed (0%).
Housing & Infrastructure
- Cement → tax reduced from 28% to 18%.
Food & Bread Items
- All Indian breads (roti, chapati, paratha, naan, etc.) → GST rate reduced from 5% to 0%.
- Ultra-heat temperature (UHT) milk and paneer → shifted to 0%.

Economic Relief: Rate rationalisation reduces cost of daily-use goods, food, medicines, and essential services.
Social Impact: Direct support to middle-class households, farmers, and patients.
Industrial Boost: Labour-intensive and agriculture-linked industries to benefit.
Fiscal Trade-off: Revenue loss expected but justified by improved consumption and welfare outcomes.