Union Finance Minister Nirmala Sitharaman, the Goods and Services Tax (GST) system in India has been significantly simplified. She stated that 99% of all goods and services are now taxed at either zero, 5%, or 18%. Only 1% of goods, classified as “sin goods” or “demerit goods,” are subject to the highest tax bracket.
Key Takeaways from the GST Overhaul
The new GST slabs, which came into effect on September 22, are part of the government’s effort to streamline the indirect tax system. The goal is to eliminate ambiguities, duplicates, and interpretative issues that previously led to litigation.
- Zero Tax (0%): This rate applies to essential items like milk, eggs, curd, and various individual services such as health and life insurance.
- 5% Tax: Considered a “merit rate,” this applies to common and essential goods. The new rates have reduced taxes on many packaged foods like ghee, butter, and nuts, as well as household items such as toothpaste and shampoo. It also includes spiced, salted, and caramel popcorn, which were previously taxed at different rates depending on how they were packaged.
- 18% Tax: This is the standard rate for many products and services. Many consumer durables like air conditioners, televisions, and dishwashers have been moved from the higher 28% slab to this bracket.
- 40% Tax: This new, higher rate is specifically for “sin goods” or “demerit goods.” This category includes high-end cars, tobacco, cigarettes, pan masala, and online gambling.
The Finance Minister also noted that petroleum products and alcohol are not included in the current GST framework and are unlikely to be added in the near future. The new system aims to provide a clearer and more efficient tax structure for both businesses and consumers.