During its 56th meeting, the GST Council approved a major restructuring of the tax system, moving towards a primarily two-rate structure, as proposed by the Central government, according to Finance Minister Nirmala Sitharaman. Under the revised framework, the main GST rates will be 5% and 18%, alongside a 40% “special rate” for sin goods such as tobacco products and luxury items like large cars, yachts, and helicopters. Most changes are set to take effect from September 22, while tobacco and related products will transition to the new structure on a date to be announced by the Finance Minister.

The government estimates that the net fiscal impact of these rate reductions, based on 2023-24 consumption patterns, would be around ₹48,000 crore. Officials noted that actual outcomes would depend on current consumption trends, with expectations of a buoyancy effect and improved compliance.

Key changes under the new GST structure include:

• Essential food items like namkeens, sauces, pasta, instant noodles, chocolates, coffee, and butter will move to the 5% rate.

• Twelve bio-pesticides, bio-menthol, and labour-intensive products such as handicrafts, marble, travertine and granite blocks, and intermediate leather goods will also drop from 12% to 5%.

• Cement will see a reduction from 28% to 18%.

• A total of 33 essential medicines will be exempted (0% GST), while spectacles for vision correction will move from 28% to 5%.

• Electric vehicles remain at a 5% GST rate.

• The inverted duty structure in the manmade textiles sector will be corrected, with GST on manmade fibre reduced from 18% to 5% and manmade yarn from 12% to 5%. Similarly, fertilizer inputs such as sulphuric acid, nitric acid, and ammonia will see rates drop from 18% to 5%.

The special 40% rate will apply to certain sin and super-luxury goods, including pan masala, cigarettes, gutka, chewable tobacco, zarda, unmanufactured tobacco, and bidi, as well as aerated and caffeinated drinks, mid-to-large cars, motorcycles with engines over 350 cc, personal helicopters and airplanes, and yachts or private vessels