GST Rate Changes and Reforms

Summary of GST Reforms under GST Bachat Utsav

• GST Rate Changes:

  • Effective September 22, 2023, GST rate cuts have been implemented across various goods and services.
  • Significant changes include:
    • Health and life insurance: Now exempt from GST.
    • Beauty services: Reduced from 18% to 5%.
    • Aspirational goods (e.g., air conditioners, refrigerators): Reduced from 28% to 18%.

• Rationalization Objective:

  • The goal is to correct the inverted duty structure, where the output tax rate is lower than that of inputs, and to streamline classification disputes among similar goods.

• GST Structure Overview:

  • The GST regime commenced in July 2017, amalgamating 17 indirect taxes and 13 cesses.
  • Current GST slabs include:
    • 0.25% for rough diamonds and precious stones.
    • 1.5% for cut diamonds.
    • 3% for precious metals (gold, silver, pearls).
    • 5% for 516 categories (mostly food items, medical devices, agricultural machinery).
    • 18% for additional 640 categories (industrial goods).
    • 40% thrust for sin goods (e.g., tobacco, luxury cars).

• Removal of 12% Slab:

  • The 12% GST slab has been removed for most items but retained for bricks with different rates based on input tax credit (ITC) eligibility.

• Economic Impact:

  • The government anticipates an increase in disposable income for households, hindering inflation, leading to boosted consumption and potential investments.
  • The revenue loss from these cuts is expected to be mitigated through increased consumer spending.

• Compliance and Reporting Enhancements:

  • The government plans to streamline registration, returns, and refund processes under GST 2.0.
  • Monthly data tracking of price changes will be monitored to ensure benefits are passed to consumers.

• Inverted Duty Structure Concerns:

  • Despite changes, some sectors still face inverted duty structures (IDS), impacting cash flows adversely.
  • Specific items where IDS persists include bicycles, tractors, and certain textiles.

• Judicial and Legislative Support:

  • Amendments to Section 54(6) of the CGST Act allowing for provisional sanction of 90% of refunds based on risk assessment are underway, operational from November 1.

• Future Actions:

  • The GST Council’s meeting has prompted exploration into rectifying persistent IDS issues across various sectors.
  • Technology-driven enhancements for registration and return filing are targeted, especially benefitting small businesses.

Key Data Points

• Implementation Date: September 22, 2023.
• Number of Services in New Rate Slabs:
  • 516 categories at 5%.
  • 640 categories at 18%.
• GST Council Meeting for Amendments: 56th meeting took place on September 3, 2025.
• Target for Provisional Refunds: Operational by November 1, with possibility of earlier implementation.

Government Initiatives

• GST Bachat Utsav aims to rationalize rates while enhancing consumer benefit.
• Focus on maintaining an equitable tax structure and simplifying compliance processes for traders and manufacturers.