The Centre will issue a notification this week to retain the goods and services tax (GST) rates for brick and tobacco products at 12 percent and 28 percent, government sources said. The move carves out exceptions for these products amid a broader overhaul of the GST regime and phase out of the compensation cess.
The draft notification, likely to be issued on September 17, has been cleared internally and awaits the approval of finance minister Nirmala Sitharaman, they said.
Since the 12 percent slab is being done away with, a notification is required to preserve the existing levy on bricks. “The notification will clarify that only bricks will continue to attract the 12 percent GST rate,” a government source told Moneycontrol.
Announced on September 6, the new two-tier GST structure, which comes into effect from September 22, has done away with 12 and 28 percent slabs. While most goods are being shifted to standard slabs with cess set at nil, exceptions are being carved out for categories such as bricks and tobacco.
Tobacco cess
The notification will also clarify that tobacco products will, for now, remain in 28 percent slab along with compensation cess until pandemic-era borrowings are fully repaid.
Tobacco attracts an indirect tax of around 53 percent, factoring in GST, cess, central excise duty and the national calamity contingent duty.
“The existing structure will be retained until the loan repayment is complete. After that, tobacco will shift to a 40 percent GST rate with an additional levy to ensure that the overall incidence does not fall,” another government source said.
According to government data, average annual GST collections from tobacco products in the past five years stood at about Rs 51,000 crore, with education cess and surcharges contributing another Rs 27,660 crore.
The GST regime is built around standardised tax slabs. When a tax rate is not part of these scheduled slabs, it can still be levied through a government notification as a special carve-out.
What is the new GST regime?
GST 2.0 aims to overhaul the goods and services tax structure. It simplifies the rate system by rationalising slabs, removing anomalies, and aligning the framework with changing consumption and revenue patterns.
The phase-out of the compensation cess and the creation of a leaner slab structure are part of this reform exercise.
How many GST slabs will be there?
From September 22, GST will be levied at 5 percent and 18 percent. Only a few so-called sin and luxury items remain in the 40 percent slab.
As part of the restructuring exercise, 12 percent and 28 percent rates have been removed from the “schedule”, requiring special notifications to preserve them for specific goods.
What is the GST compensation cess?
It was introduced in July 2017 to compensate states for revenue losses from the rollout of GST, which subsumed multiple state-level taxes.
The cess was levied on luxury and “sin goods” such as tobacco, coal, aerated drinks and automobiles. During the pandemic, the Centre borrowed against future cess collections to bridge the revenue gap.
The cess is being phased out as those loans are gradually being repaid, with a full exit expected by March 2026.
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