Education & Tech

GST Council Introduces Simplified Two-Tier Structure

In a landmark reform, the GST Council has approved a simplified tax system with just two slabs—5% and 18%. The decision was finalized during the 56th GST Council meeting chaired by Finance Minister Nirmala Sitharaman, following over ten hours of discussion. Effective from September 22, the new structure is designed to reduce complexities, make compliance easier, and deliver relief to households and small businesses.

Focus on Common Man and Key Sectors

Announcing the reform, Finance Minister Sitharaman emphasized that the changes were made with the everyday consumer in mind. Items of mass consumption have seen sharp reductions, and labour-intensive industries received substantial support. The agricultural sector, farmers, and the healthcare industry stand out as key beneficiaries of the new structure.

Updated GST Rates Across Essentials

Several categories of daily use products and services have been shifted to the lower 5% slab. Ultra-High Temperature (UHT) milk has been made completely tax-free. Dairy products like paneer, butter, cheese, and ghee now attract either nil or 5%, significantly lower than earlier rates. Packaged staple foods such as biscuits, pasta, chocolates, and cereals have all been reduced to 5%, making them more affordable for the middle class.

Dry fruits and nuts, including almonds and cashews, will now be taxed at 5% compared to the earlier 12%. Similarly, refined sugar, confectionery, vegetable oils, meat products, and namkeens have all been moved to the lower slab. Mineral and aerated waters (without added sugar) also fall under the 5% bracket. Fertilisers, seeds, and crop nutrients—critical for the agriculture sector—will now be taxed at 5%, reducing the burden on farmers.

In healthcare, life-saving drugs, medical devices, and select products now attract 5% or are completely exempt. Commonly used household appliances, footwear, and textiles have been reduced from higher brackets to 5% or 18%, ensuring relief for mass-market consumers.

Goods Retaining High Tax Rates

The Council, however, kept high GST and cess rates intact for sin and luxury goods. Pan masala, gutkha, cigarettes, chewing tobacco, and similar products remain in the highest tax slab, with valuation shifted to the retail sale price method to plug revenue leaks. High-end luxury cars, premium liquor, and certain aerated beverages with added sugars will now attract 40% GST, a significant increase aimed at discouraging consumption of luxury and harmful goods.

Exemptions and Relief Measures

Several exemptions have been introduced to further ease the burden on households. UHT milk, paneer, and Indian breads such as chapati, roti, paratha, and parotta are now fully exempt. Individual life insurance policies, including ULIPs and endowment plans, have been exempted from GST as well. These measures are expected to bring much-needed financial relief and encourage wider insurance adoption among the middle class.

PM Modi Welcomes Reform as Next-Generation GST

Prime Minister Narendra Modi welcomed the Council’s decision, describing it as a next-generation reform. He stated that the two-slab structure would simplify taxation, reduce compliance issues, and empower the common man, small traders, farmers, and MSMEs. He also highlighted that these changes align with the government’s promise to improve ease of doing business and enhance affordability for consumers.

The Road Ahead

The two-tier GST reform is one of the most significant changes since the implementation of GST in 2017. By addressing both consumption and industry needs, the move is expected to boost economic activity while protecting the interests of citizens. However, its real impact will become clear as businesses transition to the new system and adapt their pricing strategies.