Centre proposes new GST rates of 5 and 18% under revamped regime; sin goods to attract 40% tax: Sources

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The government has proposed two rates under the new Goods and Services Tax (GST) regime - 5 and 18 per cent, sources said on Friday.

In the revamped regime, majority of the items in the existing 28% tax bracket will come under the 18% slab, and those in 12% slab will fall under the 5% tax slab. While common man items and daily-use products will be taxed at 5 per cent, GST of 40 per cent will be levied on tobacco products now.

In the current GST structure, the sale of goods and rendering of services are taxed in four different brackets - 5, 12, 18 and 28 per cent.

According to sources, only 7-8 items are likely to attract 40% GST and all remaining items in 28% slab now will attract 18% GST. With the new regime, rates are expected to reduce for several categories including agriculture, textiles, fertilizers, auto parts, handicrafts, medical devices and insurance.

Petroleum products will continue to remain outside GST regime even in revamped indirect tax structure.

Earlier today, Prime Minister Narendra Modi in his 79th Independence Day announced that GST reforms which will lower tax burden substantially and benefit small industries will be implemented by Diwali.

The revamped GST is expected to give a big boost to consumption, offsetting the revenue loss that may occur from the rate revision, sources added.

The GST Council, chaired by Finance minister Nirmala Sitharaman and comprising state ministers, is expected to meet in September to discuss the GoM proposal on rate rationalisation.

Under the current GST structure, the highest (65 per cent) tax collections happen from the 18 per cent levy. The top tax bracket of 28 per cent on luxury and sin goods contributes 11 per cent of the revenue, while the 12 per cent slab accounts for just 5 per cent of the revenue.