New Delhi, Aug 18 — In a landmark move aimed at simplifying India’s indirect tax regime and stimulating consumption, the Centre has approved a major rationalisation of Goods and Services Tax (GST) rates, reducing the current four-slab system to just two primary slabs — 5% and 18%.
A special 40% “sin tax” will continue to apply only to a limited number of luxury and unhealthy products.
Finance ministry officials confirmed that the new structure will come into effect before Diwali, giving manufacturers and retailers time to transition. Experts say the reform could generate a 0.6–0.8% boost in GDP due to sharper demand and lower compliance costs.
What Changes for Consumers?
- Nearly 99% of products currently taxed at 12%, such as packaged food items, butter and fruit juice, will move down to 5%
- Approximately 90% of items in the 28% bracket — including cement, small cars and home appliances — will shift to 18%
- GST on small cars could drop from 28% to 18%
- Health and life insurance premiums may be taxed at 5%, and some could attract 0% GST
Market Reaction
Equity markets rallied immediately after the announcement:
Index Change
- Nifty 50 +1.5% (25,003.9 – best gain in three months)
- Sensex +1.3%
Top Gainers – i. Maruti Suzuki (+7.8%), ii) Hero MotoCorp (+8.5%), iii) ICICI Prudential (+5.3%)
Government’s Rationale
Officials say the reform reduces classification disputes and ends reliance on the GST compensation cess. Economists believe it will create additional fiscal headroom and spur festive-season demand.
