Govt to Streamline GST with 5% and 18% Rate: Plan to Introduce New 40% Rate on Sin Goods

The government is planning to change the Goods and Services Tax (GST) system, potentially reshaping how consumers in India pay taxes. The proposal is a streamlined two-rate GST structure, 5% and 18%, coupled with a newly introduced 40% tax bracket specifically targeting sin and luxury goods.

Simplifying the GST Slabs: Two Core Rates

As per news reports, the existing four-tier GST system is set to be simplified significantly:

• 5% Rate: Applied to essential items and daily-use goods.
• 18% Rate: The standard rate for the majority of goods and services.
• Elimination of the 28% Slab: This highest regular slab will be removed.
• Introduction of a 40% Slab: Reserved exclusively for sin and luxury products.

Which Goods Will Become More Affordable?

The government expects notable reductions in tax rates for several everyday products. Many items currently taxed at 12% are anticipated to shift to the more favourable 5% slab, which could ease the financial burden on households.

Goods moving to the 5% slab include

• Daily essentials, stationery, exercise books, and snacks like namkeens.
• Packaged foods, including butter and ghee.
• Apparel, footwear, bicycles, eyewear, and even toothpowder.

Medicines and medical devices are also likely to benefit, with taxes dropping from 12% to either 5% or zero.

Another key relief could come for health and life insurance premiums, which are presently taxed at 18%. Under the new regime, these could see rates lowered to 5% or possibly zero, bringing welcome savings for middle-class families.

Efforts are also underway to fix inverted duty structures in sectors like textiles and fertilizers, offering additional relief to farmers and consumers alike.

Focus on Consumer Durables and Automobiles

The reform blueprint addresses taxes on consumer durables and vehicles, proposing significant rate cuts in select categories:

• TVs, refrigerators, air conditioners, and cement: from 28% down to 18%.
• Two-wheelers under 350cc: reduced from 28% to 18%.
• Small cars with engines under 1200cc: current combined GST and cess of 29–31% slashed to a uniform 18%.
• Hybrid passenger vehicles: lowered from 28% to 18%.

To balance the revenue impact, the newly proposed 40% slab on sin goods is designed to offset losses.

Also Read: Industry Leader Warns Negative Implication of GST Rate Cut on Life and Health Insurance

40% Sin Goods Slab: Higher Tax on Vice and Luxury

While many goods will become more affordable, the government plans to increase taxes on select sin and luxury items by placing them in the 40% bracket.

This category is expected to include roughly 5–7 products, such as:

• Pan masala, gutkha, and tobacco products.
• Luxury cars and SUVs.
• Online gaming services may see a jump from 28% to 40%.

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