Modi govt makes major cuts in taxes on essential items: Here is how the GST reforms will benefit the common man

In a move intended to take some burden off the common man’s pocket, the central government has slashed indirect taxes on food items and everyday items. The decision was taken in the 56th meeting of the Goods and Services Tax (GST) Council held on Wednesday (3rd September).

In its 10-hour-long meeting chaired by Union Finance Minister Nirmala Sitharaman, the GST Council unanimously revised the existing four-tier tax structure of 5%, 12%, 18% and 28% and removed the tax categories of 12% and 28%.

The new indirect tax system will have only two tax slabs of 5% and 18%, effective from 22nd September, the first day of Navaratri. The reduction in indirect taxes is aimed at leaving more money in the hands of the middle class to enhance their spending capacity, which in turn would boost domestic consumption.

The centre described the tax reduction as a ‘Historic Diwali Gift for the Nation” as the decision comes ahead of the festive season. “These reforms have been carried out with a focus on the common man. Every tax on the common man’s daily use items has gone through a rigorous review, and in most cases, the rates have come down drastically… Labour-intensive industries have been given good support. Farmers and the agriculture sector, as well as the health sector, will benefit,” said the Union Finance Minister.

Here is a look at how the GST reforms will provide relief to the middle class with reduced or nil taxes on essential items.

Reduced tax on food items

Under the GST reforms, the prices of food items and everyday essentials will be reduced significantly. While GST taxes on some items have been reduced, some items have been completely exempted from the tax. For example, ready-made frozen parathas, chapatis, khakhra, pizza bread, and paneer will not be taxed.

GST rates on kitchen items like jam, fruit jellies, sauces, pre-packed namkeens and bhujia have been slashed from earlier 12-18% to 5%. Besides, food items like pasta, biscuits, chocolate, cornflakes, cocoa products, dried fruits, nuts, and dates will attract 5% tax. While zero GST rates will apply to ultra-high-temperature (UHT) milk or milk having a long shelf life, 5% GST will apply to both plant-based milk drinks and soya milk drinks.

Home electrical appliances will become cheaper

The GST reforms have been announced before the peak festive season, when the middle class spends on consumer durables to avail discounts. Under the revised tax regime, products like ACs, large-screen TVs, refrigerators and washing machines will have an 18% tax as compared to the earlier 28%.

Zero taxes on insurance and stationery items

While earlier, individual health and life insurance premiums attracted an 18% tax, after the implementation of the reforms, there will be no tax on them. This move will not only make health insurance premiums more affordable but will also attract first-time customers. Additionally, educational items like maps, charts, globes, exercise books and notebooks, which were earlier taxed at 12%, will now be exempt from any taxes.

‘Sin goods’ to attract higher taxes

While significant relief has been granted regarding a large number of everyday items under the GST reforms, certain items have been brought under the tax slab of 40%. ‘Sin Goods’ like tobacco, pan masala, gutkha, cigarettes, carbonated drinks, caffeinated beverages, coal, lignite, peatonline, gambling, SUVs, and luxury or harmful items have been subjected to enhanced taxes under the new tax regime.

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