ACs, cars and TVs: What will get cheaper under Centre's proposed GST 2.0

The developments assume significance in the backdrop of the tariffs imposed by the US President Donald Trump on Indian goods, hampering domestic economy

Prime Minister Narendra Modi, in his 12th Independence Day Speech on August 15, announced early Diwali gift for both Indian businesses and consumers with plans to restructure long-argued reform of the country’s goods and services tax system.

Under Centre’s proposed plans, government wants to reduce the current rate structure to two slabs of 5 percent and 18 percent, removing 12 percent and 28 percent rate tiers.

To be sure, the proposal has to be cleared by the GST Council, which includes all the states and UTs of the country, before the new structure can be implemented, bringing much-awaited tax relief to the consumers. The next council meeting is likely to take place in late August.

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The developments also assume significance in the backdrop of the tariffs imposed by the US President Donald Trump on Indian goods, hampering local businesses and exports.

However, if the rate recast plan does get GST Council’s nod, a significant amount of consumer items, including apparel, insurance, cars, auto components, FMCG goods, healthcare, among others, are likely to get cheaper. No relief will be provided to luxury and sin goods as they will attract a higher tax rate.

The proposed structural changes

The government intends to reduce the tax slabs from four as of now to two of 5 percent and 18 percent. The 5 percent slab will cover most of the essential daily goods items, while the 18 percent tier will contain most of the other goods and services. A separate rate of 40 percent will be levied on sin goods such as tobacco, online gaming and luxury goods. Moreover, petroleum goods will continue to remain outside the purview of GST and certain items such as diamonds and precious stones will attract taxes as per earlier rates.

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What will get cheaper

Household items such as air conditioners, television, refrigerators washing machines, mobile phones, school items such as stationery and geometry boxes, computers, readymade garments (under Rs 1,000), footwear, vaccines agricultural tools are likely to get cheaper.

ACs are likely to get cheaper by Rs 1,500 to Rs 2,500 depending on the model as they will fall under the 18 percent bracket. TV sets with sizes 32 inches and above are likely to come in the 18 percent tax bracket as well.

The auto industry will get a Diwali boost with tax rates on cars and two-wheelers coming down from 28 percent to 18 percent. The auto stocks cheered the development with Nifty Auto ending 4.61 percent on August 18.

Basic daily use items such as tooth powder, bhujia, namkeen, jam, ketchup, potato chips, packaged juices, pasta, noodles, butter, condensed milk, cheese, ghee, milk beverages will be subsumed in the 5 percent tax bracket, ANI reported.

What PM Modi said on his I-Day Speech?

During his speech, PM Modi signalled “double Diwali gift” of GST reforms, saying the new structure would simplify the system, ease the tax burden on both households and businesses and help boost demand in key sectors such as automobile, appliances and insurance.

To be sure, the Opposition, especially the Congress said it had repeatedly asked for reforms in the GST and cap the rates at 18 percent.

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Impact on economy

The tax restructuring comes in the backdrop of consumption and growth slowdown amid global uncertainties because of steep trade tariffs imposed on India. The move also comes after the new income tax changes came into effect in this financial year, a step that will further leave more money in the pockets of consumers, helping consumption growth.

The GST rate cut could also open the door for the Reserve Bank to cut repo rate in its next bi-monthly MPC meeting, giving impetus to the country’s growth.

With agency inputs