GST Council Introduces Simplified Two-Slab System
Dr. Noour Ali Zehgeer
The NDA government has once again taken a U-turn on one of its own flagship policies. When temple politics could not rescue its prospects in Bihar and when the economy showed no signs of revival, the ruling dispensation finally turned to what it should have done years ago. After a series of economic missteps, this reform looks like an overdue course correction.
I recall vividly what Dr. Manmohan Singh, former Prime Minister, said in Parliament when the BJP boasted of introducing GST as a game-changer. He warned against a complex slab system and advocated simplification. The present Leader of the Opposition, Rahul Gandhi, echoed the same. Both were dismissed at the time. Today, the government has embraced the very formula it once resisted. Better late than never.
In a landmark decision, the GST Council has scrapped the confusing four-tier system of 5, 12, 18, and 28 per cent. In its place, India will now have just two slabs, 5 and 18 per cent, with a separate 40 per cent rate for luxury and sin goods. The decision came after a marathon 10.5-hour session of the GST Council, its 56th meeting since 2017. Finance Minister Nirmala Sitharaman announced that the new rates will take effect from September 22, coinciding with the start of Navaratri.
For once, states across the political spectrum stood united. Sitharaman underlined that this rare consensus is aimed at easing compliance, reducing costs, and giving relief to ordinary citizens. Prime Minister Narendra Modi called it a “festival gift” to farmers, traders, middle-class families, and small businesses. The rhetoric aside, the decision is indeed historic.
Relief for Households
The clearest winners are consumers. Essentials are now cheaper.
Insurance: Life and health insurance policies, earlier taxed at 18 per cent, will now be fully exempt. This move could finally encourage more households to buy financial and health cover.
Food: Staples like paneer, roti, paratha, pizza bread, khakra, and chena will attract no GST. Dairy products such as butter, ghee, cheese, and condensed milk, along with dry fruits, jams, biscuits, cornflakes, and ice cream, shift to 5 per cent from 12–18 per cent.
Agriculture: Inputs like sulphuric acid, nitric acid, ammonia, and biopesticides, essential for farming, are down to 5 per cent. Tractors, threshers, and soil-preparation machinery join them, reducing costs for farmers.
Transport: Small petrol cars (below 1200cc), diesel cars (below 1500cc), and motorcycles up to 350cc, earlier taxed at 28 per cent, now fall in the 18 per cent bracket. Hybrids also benefit. Electric vehicles remain at 5 per cent.
Everyday Goods: Shampoo, toothpaste, toothbrushes, soaps, talcum powder, hair oil, feeding bottles, bicycles, utensils, umbrellas, and bamboo furniture drop to 5 per cent.
Infrastructure: Cement, once heavily taxed at 28 per cent, now attracts 18 per cent. Auto components also move to 18 per cent, cutting repair and maintenance costs.
These cuts will ease household budgets, especially with the festive season around the corner.
Taxing the Luxuries
The flip side is higher taxation on luxury and harmful products, now shifted to the new 40 per cent slab.
Sugary Drinks: Colas, energy drinks, and fruit-based carbonated beverages jump from 28 to 40 per cent.
Luxury Vehicles: Cars with engines above 1200cc (petrol) or 1500cc (diesel), motorcycles above 350cc, racing cars, yachts, and private aircraft all face 40 per cent.
Flavoured Beverages: Drinks with added sugar or artificial sweeteners are also included.
Tobacco: Pan masala, gutkha, cigarettes, and bidi remain at 28 per cent plus compensation cess for now but are expected to move to 40 per cent once cess arrears are settled.
The message is unambiguous: essential consumption is encouraged, conspicuous consumption is discouraged.
Why This Reform Matters
Since its launch in 2017, GST was billed as the biggest reform in independent India’s tax system. But its multi-slab design created confusion and disputes. Businesses wasted energy arguing over whether a product belonged in the 12 or 18 per cent category. Consumers bore the cost.
The new system addresses these long-standing flaws:
1. Simplified compliance by reducing slabs and cutting classification disputes.
2. Direct consumer relief through lower taxes on essentials.
3. Support for growth sectors like agriculture, infrastructure, and manufacturing by lowering input costs.
4. Public health benefits by taxing sugary drinks and tobacco higher.
5. Green mobility with continued low GST on electric vehicles.
Timing and Politics
The decision to implement the new rates on September 22, at the onset of Navaratri, is not accidental. The festive season drives spending on food, personal care, and vehicles. Lower taxes could trigger a demand surge that lifts the economy. The government, grappling with sluggish growth, is betting on this boost.
Politically, the move also signals responsiveness after years of resistance. Critics will say it is an election-year gimmick. Supporters will call it pragmatic reform. Either way, the consumer benefits are real.
A Turning Point
By simplifying GST, the government has finally acted on what experts recommended from day one. This is not just tax rationalisation, it is damage control after years of complexity. For families, it means lower grocery and utility bills. For farmers, cheaper machinery and inputs. For small businesses, less paperwork. For the economy, the promise of a consumption-led revival.
Yes, this reform comes late. Yes, it is politically timed. But it also reflects a recognition that economic reality cannot be ignored forever.
As India steps into the festive season, the simplified GST is perhaps the most meaningful gift the government could offer: a lighter tax on essentials, a heavier burden on luxuries, and a system closer to what the nation needed all along.
