INTEGRATED MAINS AND PRELIMS MENTORSHIP (IMPM) 2025 Daily KEY
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Goods and Services Tax (GST) and Expenditure on Childrens Education in India and its significance for the UPSC Exam? Why are topics like Free Movement regime, Particularly vulnerable tribal groups (PVTGs) , India-US relations important for both preliminary and main exams? Discover more insights in the UPSC Exam Notes for September 08, 2025 |
For Preliminary Examination: Current events of national and international Significance
For Mains Examination: GS III - Economy
Context:
On September 3, the GST Council authorised a new paradigm in the indirect tax regime. There will be fewer rates, and the Goods and Services Tax (GST) on most items have been reduced. While this has been welcomed by most sectors, there are some which are somewhat disgruntled. There are also concerns over the revenue implications.
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Goods and Services Tax (GST)
GST Council
Key takeaways:
- On September 3, 2025, the GST Council approved a major restructuring of the indirect tax framework. The new model reduces the number of slabs and lowers GST on most goods. While these changes have been welcomed by many industries, some sectors have expressed dissatisfaction, and concerns remain over possible revenue shortfalls.
- Discussions on rationalising GST rates have been ongoing for several years. In 2021, the Council set up a Group of Ministers (GoM) composed of state representatives to examine this issue, though its progress was limited.
- To accelerate the process, the Union Finance Ministry submitted its proposals to the GoM on August 15, 2025, the same day Prime Minister Narendra Modi described these “next-generation” reforms as a Deepavali gift in his Independence Day speech.
- Following a briefing by Finance Minister Nirmala Sitharaman, the GoM endorsed the proposals and forwarded them to the Council, which took them up in a marathon 10.5-hour meeting on September 3.
- The revised tax structure reduces the earlier slabs of 0%, 5%, 12%, 18%, 28% plus cess to 0%, 5%, 18% and 40%, with most compensation cesses withdrawn. The cess continues only on tobacco products but will also be phased out once the Centre clears its COVID-19 compensation loans.
- Of the 453 items affected, 413 (over 91%) saw rate reductions, particularly shifting common-use goods from 12% to 5%. A smaller group of 40 items faced hikes, including 17 luxury products that moved from 28% to 40%, though in cases like SUVs, the effective tax incidence will actually decline when the cess is removed.
- The timing of these changes is tied to two developments. First, the legal window for levying the compensation cess will soon close, likely by the end of this year, once the Centre repays its borrowings.
- Without new rates, items such as tobacco would have become cheaper, which the government could not justify. Second, the reforms may also cushion the economic impact of recent U.S. tariffs of 50% on Indian imports, which are expected to slow growth in the coming quarters despite a strong 7.8% GDP growth in Q1.
- The healthcare sector has welcomed the cut in GST on medical products from 12% to 5%, highlighting benefits for patients. The renewable energy sector also hailed the reduction on components as a boost to India’s clean energy goals. Real estate developers have praised the lowering of GST on cement from 28% to 18%, while auto manufacturers expect stronger demand from tax cuts on cars and two-wheelers.
- On the other hand, some industries are less satisfied. The textile sector supported the 5% rate on fibres but criticised the 18% duty on garments above ₹2,500, warning it will make woollens and wedding apparel costlier.
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