In a landmark decision aimed at boosting domestic demand amid global trade headwinds, the GST Council on Wednesday approved a new two-tier tax structure of 5% and 18%, with an additional 40% levy for demerit goods to be finalised later. The changes will come into effect from September 22.
The decision was taken at the 56th GST Council meeting, chaired by Union Finance Minister Nirmala Sitharaman in New Delhi. The meeting, which lasted over ten hours, saw the Centre and states deliberate on crucial tax proposals before reaching a consensus.
Why the Change?
Officials said the move is designed to spur consumer spending by reducing taxes on a wide range of items, from soap to small cars. With the U.S. tariffs adding pressure to India’s trade outlook, policymakers see rationalised GST as a way to strengthen domestic demand and shield the economy.
States React
The tax cut, however, will come at a cost.
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West Bengal Finance Minister Chandrima Bhattacharya said the changes would result in an estimated ₹47,700 crore revenue loss.
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Bihar Deputy Chief Minister Samrat Choudhary stressed that the decision had unanimous support from states, calling it a “consensus-based step.”
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Uttar Pradesh Finance Minister Suresh Khanna clarified that no decision had been taken yet on additional levies over the 40% slab for demerit goods, which will be discussed in the future.
The GST rationalisation marks one of the biggest reforms since the tax’s rollout in 2017. While short-term revenue losses are expected, the government is betting that higher consumption and compliance will offset these losses in the long run.
For ordinary citizens, this change means cheaper essentials and consumer goods, but for the exchequer, it’s a balancing act between stimulating growth and managing fiscal pressures.
